Inherited IRAs, missed opportunities for stock gifts, topics for client meetings, and, wait for it, crypto

Greetings from the community foundation!

The last weeks of summer are already ushering in the usual uptick in questions about charitable giving and year-end tax planning. Typically, in the weeks leading up to the fourth quarter, we field quite a few questions from advisors and donors about the laws governing nonprofits and charitable giving in general. We are always glad to hear from you!

We've heard your feedback that it is easy to get caught up in the minutia of specific charitable giving vehicles and the ever-changing tax laws at the expense of the valuable big picture. For that reason, as you work with your clients this month, we encourage you to listen carefully for questions that signal the need for a quick refresher. “How much should I give to charity this year? Remind me what’s deductible and what’s not? What am I missing in my tax planning that could really save me money and help me support my favorite causes? Can you explain this whole foundation concept again? It’s been awhile.”

The team at the community foundation is here to help. We are always happy to join you for “lay of the land” conversations to help ground your clients in the charitable priorities that mean the most to them, and then connect the dots to actual charitable planning vehicles that will help your clients support the community, save taxes, and create legacies for future generations, all at the same time. We’re also always happy to point you in the right direction to find resources, articles, and tutorials that can help quickly orient your clients to the philanthropy industry as a whole. (We really like this overview sheet, for example, from Candid.) 

Thank you for the opportunity to serve your clients. We look forward to hearing from you in the weeks and months ahead as you bring your clients’ 2022 charitable giving goals to successful conclusion. 

Inherited IRAs: Big headache, or big opportunity? 

Don’t be surprised if your clients are walking into your office in a state of bewilderment over something they’ve read recently about the IRS’s distribution rules for inherited IRAs. 

What’s the back story?

Until the law changed a few years ago, a client who was named as the beneficiary of a parent’s IRA, for example, could count on a relatively straightforward and tax-savvy method of withdrawals called the “stretch IRA.” With the passage of the SECURE Act, that changed for many clients who inherited an IRA after December 31, 2019. Instead of taking distributions over their lifetimes, affected clients would need to withdraw the entire inherited IRA account within a 10-year period as calculated under the law. 

What’s the problem now?

Too bad about the loss of the stretch IRA, but we’ve all had time to adjust to the new IRS rules, right? Wrong. Unfortunately, the IRS rules are, at the moment, clear as mud. Concern escalated when the IRS issued proposed (but not yet final) regulations earlier this year. Advisors and clients are facing an acute discrepancy between what had been understood by practitioners immediately after the SECURE Act was passed, on one hand, and what the IRS has included in the proposed regulations, on the other hand.

Specifically, some non-spouse beneficiaries of an inherited IRA may not be able to wait until the 10-year post-inheritance mark to fully withdraw the funds in a lump sum, but instead, according to the proposed regulations, must begin taking annual distributions immediately following the inheritance and throughout the statutory 10-year period during which all funds must be withdrawn. This is a hard pill to swallow for clients who were counting on years of additional tax-free growth and who had hoped to defer an income tax hit until a lower-income year.

The situation is complicated but worth understanding (we like this very clear article) because of the potential headaches the proposed regulation could cause for your clients who are caught in the gray area.    

A charitable giving opportunity?

The current state of confusion could present a golden opportunity to serve your philanthropic clients.

First, anytime you are talking about IRAs, inherited or not, you’ll want to make sure your client knows about Qualified Charitable Distributions (QCDs). As tax enthusiasts, we may feel we talk about QCDs all the time. Hearing the message multiple times, though, is crucial in order for clients–who are likely not tax experts–to truly appreciate the benefits of the QCD. 

As a reminder, through QCDs, a client who is 70½ or older can use a traditional IRA to distribute up to $100,000 ($200,000 for a couple) per year, which happily counts toward satisfying Required Minimum Distributions, to a qualified charity, including certain types of funds at the community foundation. The distribution is not reported by the client as taxable income because it goes straight to charity.  

Second, for your clients owning inherited IRAs who are caught in the confusion of SECURE Act proposed regulations, a QCD could come in very handy. The IRS does permit taxpayers to make QCDs from inherited IRAs, not just their own IRAs. This option could be a welcome relief to clients who are facing the more stringent proposed IRS regulations governing the payout requirements for inherited IRAs.

Please contact us if you have questions about how your clients can use their IRAs to support their favorite charitable causes. We’d be glad to help. 

Highly-appreciated stock: If your client missed the ideal window, it’s still not too late to support charity

During a routine check-in meeting, your client casually mentions that the client’s employer, a local company, was just acquired. The client and dozens of fellow employee shareholders are now flush with cash. “I’d like to use some of the money to give to charity,” the client tells you. “Let’s talk about a family fund at the community foundation.”

You try not to flinch as you mentally calculate the capital gains taxes your client could have avoided if the client had given some of those shares to a fund at the community foundation years ago when the company was clearly growing fast, making it a natural target for acquisition or IPO, but well before an exit was in the works.  

All is not lost. You can still help the client establish a donor-advised, field-of-interest, unrestricted, or other type of fund at the community foundation to fulfill the client’s charitable intentions. The client’s gifts to the fund qualify for a charitable tax deduction in the current tax year, helping to offset the income from the sale of the shares.  

Still, this situation is all too common and a good reason to regularly remind clients about their options for making gifts to charity and the tax benefits of each.

Giving cash to a public charity, which is what your client in this situation will be doing (!), is always a viable option. The general rule is that your client can deduct cash gifts to up to 60% of their adjusted gross income (AGI) in any given year. While this may not completely offset large gains from the sale of the stock, it will help to reduce the client’s taxable income.

Giving appreciated stock, which is what you wish your client had done, is a very tax-effective method of supporting public charities. Clients who donate stock outright avoid all capital gains tax that would be levied on a sale of the stock if it were sold prior to making the donation. Even with the 30 percent of AGI limitation imposed on gifts of highly-appreciated, long-term capital gains property to a public charity, your client likely will still come out ahead because the client’s AGI is presumably a lot lower than it will be in the year of a future stock sale. 

The “i’s” have it: Two key topics for client meetings

Inflation, interest rates, income tax, and the IRS are ever-present topics during discussions with your clients. Right now, there’s a lot to talk about, especially related to charitable giving.

Let's look at two examples of hot topics that may take a front seat in your client conversations this fall as you are helping your clients consider their options for structuring charitable giving and philanthropic legacies in the current economic environment.

Our first hot topic is the notion that rising interest rates can increase the attractiveness of certain charitable remainder gift vehicles.

Clearly, wealth planning priorities are impacted by interest rates. Charitable components of estate and financial plans are no exception. When interest rates are high, your clients may want to look closely at annuity vehicles that leave a remainder gift to charity, such as a charitable remainder annuity trust or a charitable gift annuity. 

Creating a charitable remainder annuity trust in a high interest rate environment, versus a low interest rate environment, drives down the present value of your client’s income stream, which means that the value of the remainder passing to charity is relatively high and therefore so is the client's upfront tax deduction for the charitable portion of the gift. 

Charitable gift annuities also are becoming more attractive to philanthropic clients, for different reasons. Thanks to the recent increase in rate of return assumptions for charitable gift annuities, this planned giving vehicle is now more attractive to donors who like the idea of a higher payout rate for their lifetime annuity.

Our second hot topic relates to the IRS. Projected increases in the IRS’s ranks may be raising more advisors’ and clients’ eyebrows than actual tax hikes. The much anticipated Inflation Reduction Act is now law, and while the Act did include changes to a few income tax provisions, many tax professionals are viewing the Act’s $80 billion in funding increases for the IRS to be the bigger headliner. 

Some commentators worry that the IRS still may not be able to build its staff and update technology as quickly as the legislation anticipated. Nonetheless, financial advisors, attorneys, and accountants are taking note. In all likelihood, shoring up the IRS’s operations means that the chances of client audits will increase. Your clients may even be reading up on this in the mainstream media, which frequently cites unusually large charitable deductions as a potential trigger for an IRS audit. 

Now is the time to make sure your clients understand the rules for charitable deductions and commit to keeping track of their donations in detail. Establishing a fund at the community foundation is an easy way for clients to organize and track their annual giving.

Some clients, for example, make a single, tax-deductible transfer of highly-appreciated stock each year to their fund at the community foundation. The proceeds from the sale of that stock are then used for distributions from the fund to the client’s favorite charities. In this situation, no matter how many different charities benefit from the fund, the client still has just one receipt to keep track of charitable donations for income tax deduction purposes. 

Please reach out to learn more about ways the community foundation can work with you and your clients to navigate the ever-changing economic factors that influence their charitable giving plans.

Cryptocurrency: What if your clients own it and you don’t think they should?

Most advisors exercise extra caution when advising clients about cryptocurrency. Indeed, 68% of investment fund executives surveyed do not believe it is a good idea for their clients to own cryptocurrency in the first place. Still, according to some sources, 43% of clients hold cryptocurrency in their portfolios. 

If you’re among the advisors who routinely caution clients about investing in cryptocurrency, what is the best way to navigate conversations with clients who are among the 43% who already own it?

In a case like this, consider talking with your client about giving cryptocurrency to a family fund at the community foundation or other public charity. Gifts of cryptocurrency are similar to gifts of other highly-appreciated assets, including the documentation required to substantiate value. Be aware, though, that the IRS is watching cryptocurrency closely and considers it an area of potential underreporting and abuse. Recently, for example, for the very first time the IRS has targeted a cryptocurrency trading platform with a subpoena-like process to gather information about possible abusive transactions. 

As cryptocurrencies’ profiles rise in the marketplace, the team at the community foundation is happy to work with you to evaluate whether charitable giving strategies could be a tax-savvy option for your community-minded clients to exit the cryptocurrency market and simultaneously support their philanthropic goals. 

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.

Making wills, looking ahead to 2026 (!), and giving away the farm

Hello from the community foundation!

As we’re marching ahead through the weeks of summer, proper philanthropic planning is becoming even more important to your charitably-minded clients in an economic climate fraught with inflation, stock market volatility, rising interest rates, fears of a recession, and even fears of a new global health crisis. 

We understand that factors like this are very much on your clients’ minds, even if clients might not express their concerns directly during your meetings. To that end, the topics in this newsletter are designed to equip you with conversation starters and planning ideas to allow philanthropy to enrich your relationships with your clients as you guide them through challenging times. This month we’re featuring important reminders about bequests, legislative updates and a look ahead to 2026, and food for thought as you build estate and financial plans for clients who own farmland.

As always, please reach out. Our goal is to earn your trust in our team’s knowledge and expertise so that you will not hesitate to pick up the phone and give us a call whenever a client mentions anything about philanthropy. Most of the time, we can help you serve the client. If we can’t, we will point you in the right direction.

Thank you for the opportunity to work with you and your clients to make this community a better place. We are grateful.

–Your Community Foundation

Back to basics: Reminding clients about wills, trusts, and charitable bequests

August is national Make a Will Month, and the publicity surrounding this designation may prompt your clients to ask you about whether their affairs are in good order. Of course, making sure a client has established an estate plan and executed corresponding legal documents is a priority for any attorney, accountant, or financial advisor who practices in the field of estate planning, tax, or wealth management. Still, it’s always helpful to remind clients to keep their estate plans up to date and review their plans with you on a regular basis.  

Indeed, despite the many cautionary tales arising out of the Covid-19 pandemic, most Americans do not have a will. Even those clients who do have estate plans in place may not truly understand the difference between a will and a trust (and the reason they still need a will even if they have a revocable living trust). A client also may not understand that a charitable bequest can be part of an estate plan whether the client’s main estate planning vehicle is a will or whether it is a trust. 

Of the $485 billion given to charity by Americans in 2021, according to Giving USA, 9.5% of that giving came from bequests–that’s $46 billion. Giving USA’s data visualization tool illustrates the ebbs and flows of bequest giving, which has long been a significant component of philanthropy. 

Research reveals fascinating psychological factors behind a person’s decision to leave a bequest in the first place, which helps to understand the motivation for leaving a gift to a charitable organization in a will or trust. Not surprisingly, altruism has long been one of those factors. Bequests to charity are not a new idea. Examples of high profile estate gifts date back centuries. Some of your clients may be familiar with the bequests of Benjamin Franklin, who established testamentary charitable trusts dedicated to supporting Boston and Philadelphia tradesmen, and George Washington, who left bequests in his will to colleges and trade schools.

Our team welcomes the opportunity to work with your clients to establish bequests to your clients’ funds at the community foundation through a will or trust or through a beneficiary designation on a qualified retirement plan or life insurance policy, including providing you with proper bequest language to ensure alignment with your client’s intentions. Make a Will Month is also a good time to remind your clients that bequests of qualified retirement plans can be extremely tax-efficient. Funds flowing directly to a client’s fund at the community foundation from a retirement plan after the client’s death will not be subject to income tax or estate tax. 

We look forward to working with you to establish your clients’ philanthropic legacies. 

Summer legislative updates–and looking ahead to sunsets

Reconciliation legislation is back in play, and while it includes a few tax provisions (e.g., adding a corporate minimum tax and eliminating the carried interest tax break), the proposed legislation is far less sweeping than reforms proposed in earlier versions. Notably, though, the proposal includes $80 billion in budget increases for the Internal Revenue Service, which will help shore up the IRS’s expertise and pay for enforcement efforts to collect taxes. Taxpayers and their advisors can likely expect greater scrutiny from the IRS on complex or aggressive transactions in the years ahead if this legislation passes.

Philanthropic individuals and families and their advisors also continue to watch the status of SECURE 2.0 because of the enhancements it proposes to the rules for Qualified Charitable Distributions. SECURE 2.0 could pass through Congress by the end of the year.

While potential tax reform through budget reconciliation legislation may be top of mind for taxpayers and advisors, it’s also important to remember that the Tax Cuts and Jobs Act of 2018 (which seems like a long, long time ago!) included several changes to the tax rules for individuals that are set to expire after the close of the 2025 tax year. Unless those provisions are extended, the sunsets could impact tax planning for philanthropic families and individuals. For example, the standard deduction will decrease by nearly half, adjusted for inflation. This means some clients may once again itemize their deductions, thereby influencing charitable giving income tax strategies. In addition, the estate and gift tax exemption amount, increased under the Tax Cuts and Jobs Act, will be cut down so that in 2026 the exemption amount will be approximately $6.2 million adjusted for inflation. This will impact not only estates valued above the current exemption amount of $12.06 million but also estates valued in the $6 to $12 million range. Because assets transferred through lifetime gifts and bequests to charitable organizations are not subject to gift or estate tax, philanthropy may be an effective tax planning tool for even more taxpayers after 2025.   

As your clients begin to set their philanthropic goals for the next several years, the team at the community foundation is happy to help structure long-term strategies to maximize not only your clients’ tax benefits, but also the benefits to the community. Our professionals are deeply familiar with the short-term, mid-term, and long-term needs of our community, as well as the nonprofits that are working to address those needs. Our experienced team works with you to help your clients support community needs now and in the future through clients’ donor-advised funds, field of interest funds, designated funds, and other vehicles established at the community foundation. We strive to align the interests of everyone involved: your client, the charities your client wants to support to improve our community, and you in your trusted role as the client’s advisor. 

Farms, tax planning, and funding a family legacy

Given that there are more than 2 million farms in the United States, most advisors have at least one client who owns farm property. Although the number of farms has been dropping slowly but steadily since 2000, still, millions of dollars of wealth are tied up in farms as agricultural land continues to be valuable. 

Farmland, like many other hard-to-value assets, tends to carry with it a lot of emotional attachment. Farmland also can be hard to deal with in an estate plan because of the challenges of multiple owners and the complexity of the estate tax as it’s applied to farm-related assets. For these reasons, it is worth exploring philanthropic options with your clients who own farmland.

Multiple ways to structure a gift

A fund at the community foundation can receive a tax-deductible gift of farmland in a variety of ways. An outright gift is always an option; lifetime gifts of farmland held for more than one year are deductible for income tax purposes at 100% of the fair market value of the property on the date of the gift, which also avoids capital gains tax and reduces the value of the client’s taxable estate. Other ways to give farmland include a bargain sale or a transfer to a charitable remainder trust which produces lifetime income for your client.

Keeping the family together

A gift of farmland to a fund at the community foundation doesn’t just provide tax benefits. The gift also helps your client overcome the emotional challenges associated with letting go of an asset that in many cases has been in the family for generations.

By donating farmland to a fund at the community foundation, a client can work with the foundation to extend the emotionally important, family-related dynamics that were previously linked to the land, even after the foundation sells the farmland and the client’s fund holds the proceeds. For example, multiple generations of family members can serve as advisors to the fund and collectively recommend grants to charities that carry on the values held by the family during the years it operated the farm, such as funding agricultural scholarships, promoting sustainable farming, or supporting programs that educate entrepreneurs about how to build a successful farming operation. 

A cautionary note

Closely related to gifts of farmland to charity are conservation easements. Conservation easements can be a tax-effective way for a client to fulfill charitable intentions with real estate, but these vehicles must be carefully constructed to avoid landing on the IRS’s radar. 

We are happy to help you and your client structure a gift of farmland to a fund at the community foundation so that the client’s family members can continue to work together even after the farm is sold. Please reach out anytime!

The team at the community foundation is a resource and sounding board as you serve your philanthropic clients. We understand the charitable side of the equation and are happy to serve as a secondary source as you manage the primary relationship with your clients. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.  

Younger donors and "bunching," surprising benefits of community foundations, and a SECURE Act reminder

Hello from the community foundation!

As the second half of 2022 gets into full swing, many people are already starting to think ahead to year-end tax planning. Perhaps you’re even reviewing client files to schedule annual meetings, update estate plans, or adjust 2022 tax planning to align with the realities of the year. A lot might have changed for your clients now that we are in the midst of high inflation and stock market volatility. 

The team at the community foundation is on the same page. We’re working with our donors to ensure that their charitable giving plans are aligned with what’s going on in 2022. For example, we’re helping donors increase support for organizations that are struggling to keep up with rising costs; we’re working with donors and their advisors to implement tax planning strategies that involve the charitable tax deduction; and we’re engaging in conversations about how donors’ estate plans can leave a legacy to the community we all love.

We are grateful for the opportunity to work alongside so many of you as you’re advising your philanthropic clients. If we’ve not yet had a chance to work together, please reach out. Our team would love to get to know you and learn how we can be a useful, behind-the-scenes resource for the charitable components of the services you provide to your clients.

To that end, this issue of our newsletter features three topics related to the ways we can work together:

–Tax planning strategies for your younger, philanthropic clients

–Benefits of collaborating with the community foundation that surprise some advisors

–A quick reminder of why the SECURE 2.0 Act is on our radar

We wish you a wonderful summer and hope to hear from you soon! 

Sincerely,

Your Community Foundation

Bunching, long-term appreciated assets, and the fruits of helping younger clients plan their charitable giving

Developing a thorough estate plan isn’t important only for Baby Boomers and Gen Xers. Millennials, who now make up nearly a quarter of the population in the United States, may prove to be more enthusiastic planners than their parents and grandparents, according to the 2022 Estate Planning Study: Millennial Estate Planning Continues in a Pandemic.

What does this mean for planning gifts to charity?

Your millennial clients may be interested in setting up charitable gift vehicles earlier in their lives than some of your older clients. And because millennials tend to be better savers than their elders, it’s never too soon to discuss philanthropic intentions with your younger clients.

What’s an example of a giving technique that is well-suited for millennials?

As they build careers, switch jobs, and start businesses, millennials’ incomes may ebb and flow from year to year. This makes “bunching,” or “bundling,” through a donor-advised fund at the community foundation very useful. Because contributions to the donor-advised fund are eligible for an immediate tax deduction--but are not required to be granted from the fund to charities right away--your client can “front load” donations into a donor-advised fund at a level that takes advantage of itemizing deductions during a high income year, and then contribute less to the donor-advised fund in lower income years. Each year, your client can recommend grants from the donor-advised fund to favorite charities according to the timeframe that aligns with the client’s goals for supporting those organizations, regardless of the client’s income in that particular year.

Does bunching work with long-term appreciated assets?

Yes! Although it may seem obvious to professionals in the financial world, it’s not always top of mind for your clients to remember to donate long-term appreciated assets to their donor-advised funds. This is especially true of millennial clients who only now might be reaching a point in their lives when they own stock or other assets that have gone up in value. Donating an appreciated asset is tax efficient because the asset given to the donor-advised fund or other public charity typically is deductible at the asset’s fair market value. The charity, in turn, pays no capital gains tax on its sale of the asset, thereby generating more dollars to support charitable causes than your client would have had if the client had sold the asset and given the proceeds to charity.

Does it work to give real estate?

Yes! Real estate is an excellent long-term asset to donate to a donor-advised fund at the community foundation, especially now. In late 2021, buying a second home appeared to be a strengthening trend. While higher interest rates and inflation might dampen that trend in the short-term, the ability to work from anywhere is a reality that’s unlikely to disappear. This means even your younger clients, not just retirees, may be buying and selling second homes and even rental properties. These clients could be good candidates to donate real estate to a donor-advised fund. As with gifts of other long-term appreciated assets, a client’s gift of real estate to a donor-advised fund at the community foundation avoids capital gains taxes and generates more money for charitable causes than selling the property first and donating the proceeds. 

Any fun facts here?

Millennials’ end-of-life planning preferences have departed from the previous generations’ traditions, according to the study, right down to the most popular songs played or performed at a memorial service. Sought after titles now include Beyonce’s “I Was Here” in addition to Frank Sinatra’s “My Way.” 

The community foundation edge: Personal knowledge, QCD eligibility, and public support  

Advisors frequently comment that they’re surprised to discover the many ways the community foundation can help their clients, especially compared with national donor-advised fund programs affiliated with brokerage houses or financial services firms. Here are three examples of the types of comments community foundations have heard over the years from attorneys, accountants, and financial advisors:

“I didn’t realize that the community foundation’s donor-advised fund offering was so much more than just an online account. My clients have loved getting to know other donors, accessing first-hand knowledge about what’s going on in the community and how their favorite charities are making a difference, and being able to involve their children in philanthropic events and activities.”

“I’m amazed at the variety of funds the community foundation can administer. Many of my clients have established donor-advised funds and have also augmented their philanthropic planning with a specialized fund such as a scholarship fund, designated fund, or field-of-interest fund. A big bonus for my retirement-age clients is that the IRS allows the community foundation to receive a Qualified Charitable Distribution from a client’s IRA and place it into one of these specialized funds.” 

“My clients who sit on boards of directors of start-up charities have been so happy that grants from donor-advised funds–their own and others’--count toward the IRS’s public support test. That’s really helped new organizations in our community get off the ground.” 

QCD enhancements: Steps forward and fingers crossed 

In legislative news, a recent flurry of activity in the Senate has inched forward the legislation known as SECURE 2.0. Philanthropists and their advisors are watching this legislation closely because of the proposed inclusion of provisions that would adjust the annual $100,000 Qualified Charitable Distribution (“QCD”) cap for inflation and allow a one-time, $50,000 QCD to a charitable remainder trust or other split-interest gift. It’s impossible to predict what might happen when the House and Senate bills are combined and reconciled and then brought to a final vote. If we were forced to speculate, we’d guess that the legislation will pass late this year, the QCD enhancements indeed will make it into the final bill, and the legislation will be signed into law later this year. Our fingers are crossed, as no doubt yours are as well, because we are huge fans of the QCD and its ability to unlock charitable dollars.

Philanthropy and retirement planning: Intertwined in today's market

Greetings from the community foundation!

We hope this newsletter finds you well. 

As global and national events continue to remind us about what’s really important, our board of directors and staff remain deeply and increasingly committed to deploying the power of giving to create positive change in the world. 

Recently, we reflected on a 2017 Forbes post about the important role community foundations play in responding to tragedies and disasters. Still relevant nearly five years later, this article offers a simple review of the ways our community foundation and other community foundations across the country are uniquely qualified to address global issues with local impact, and local issues with global impact, through a combination of deep community knowledge and charitable giving expertise. The short article may also be worth sharing with clients who are building philanthropic legacies now and for their families’ future generations. 

Thank you for trusting the community foundation to help you stay current on legislative changes that impact charitable giving, trends in philanthropy, and planning techniques. We look forward to continuing to help you serve your philanthropic clients by offering solutions to address local, national, and global needs, as well as helping your clients build legacies across generations. 

–Your Community Foundation

Planning for retirement and giving to charity: Intertwined solutions in economically puzzling times  

Retirement planning no doubt is an important discussion topic during client meetings every year. In recent months, though, you may have observed an uptick in clients’ questions about their plans for retirement, perhaps related to:

–Required minimum distributions (“RMDs”) from qualified retirement plans, including questions prompted by media coverage of pending legislation known as SECURE 2.0;

–Stability of retirement investments, a topic that is widely covered in mainstream financial news; and

–Rising interest rates and what that means for retirement, which is also a frequent topic in the media, along with inflation’s impact on retirees.  

Against this backdrop, the issues become particularly complex for philanthropic clients. Here are answers to questions you may be asking:

What’s going on with updates to the charitable giving components proposed in the SECURE 2.0 Act?

Right now, SECURE 2.0 includes a provision that would index the $100,000 Qualified Charitable Distribution (“QCD”) allowance for inflation and also expand the technique to allow for a one-time transfer of $50,000 to a charitable remainder trust or other split-interest vehicle. But those enhancements are not the law, yet. Overall, the legislation appears to stand a good chance of becoming law. Still, a lot can happen as the House and Senate reconcile their respective bills before the legislation heads to President Biden for signature.

So what should I be telling my clients about the potential changes to the Qualified Charitable Distribution rules? Or should I say nothing?

For clients who are seriously considering a QCD, it may be worth mentioning these potential enhancements. But in general, it’s usually more confusing than helpful to bring up pending legislation, no matter how exciting. Instead, consider placing your focus on the QCD rules as they currently stand. The QCD already is a strong planning tool.

When should I reach out to the community foundation for help with QCDs?

The answer is, anytime! The community foundation can help establish a qualifying fund to receive your client’s Qualified Charitable Distribution, regardless of whether the SECURE 2.0 enhancements become law. The recipient fund can’t be a donor-advised fund, but there are other very effective options. 

With interest rates rising, are there particular techniques that I should be discussing with my clients who are planning for retirement and are charitable inclined?

Yes. Now is a good time to consider talking with these clients about charitable gift annuities. A charitable gift annuity, like any other annuity, is a contract. Your client agrees to make an irrevocable transfer of cash or assets to a charitable organization. In return, the charitable organization agrees to pay the client (or the client’s designated beneficiary) a fixed payment for life. Your client is eligible for an immediate income tax deduction for the present value of the future amount passing to charity. 

What if my client needs the tax deduction this year but won’t be retiring for several years? 

Charitable gift annuities offer flexibility, in that your client may choose to structure the contract as a “deferred gift annuity,” meaning that the client starts receiving payments at a future date (or upon a future event such as retirement), rather than immediately while the client's effective income tax rate may still be high. In this way, the charitable gift annuity can be a tax-savvy component of an overall retirement plan.

How do rising interest rates factor in?

Client discussions about charitable gift annuities are especially timely because the American Council on Gift Annuities recently voted to increase the “rate of return assumption” used as guidelines for maximum payout rates. Effective on July 1, 2022, the return assumption will increase from 3.75% to 4.5%. This means that the Council’s suggested payout rates will be going up. That’s good news for a client’s income stream. 

What’s the bottom line on this?

The net-net here is that rising interest rates make the charitable gift annuity an even more attractive tool for clients who want to combine charitable planning with retirement planning. The team at the community foundation can help you evaluate this option to determine if it is a good fit for your client.

Playbook: Helping clients organize their giving through a donor-advised fund

Your clients will arrive in 15 minutes. You’re reviewing the file. Everything is in order. The estate planning documents are up to date, you’re ready to share the latest investment results, and you are prepared to debrief the 2021 tax season and make tax planning recommendations for the remainder of this year. It sounds pretty typical up to this point, right? 

As you continue to scroll through the materials, you see the names of several charitable organizations that your clients have supported every year for at least a decade. Ah ha! This is an opportunity to add even more value to your clients. Easy for a busy advisor to overlook, charitable giving habits are actually an important window into helping a client make planning decisions around their philanthropic intentions.

Here’s a simple playbook to guide you through a client conversation to begin establishing a charitable giving plan using a donor-advised fund at the community foundation.

–Call your clients’ attention to their charitable giving history. They might not even be aware of how much they are giving or how long they’ve been supporting their favorite charities. 

–Gather more information about why the clients support those particular causes. Family tradition? Past involvement as a beneficiary of an organization’s services? Desire to impact a particular area of need? 

–Talk with your clients about their community involvement. Do they serve on any boards of directors? Do they volunteer at local organizations?

–Review any charitable giving provisions in the current will or trust. Are the clients leaving a bequest to favorite charities?   

–Ask your clients if they’ve ever considered organizing their giving through a donor-advised fund. If they are not familiar with donor-advised funds, perhaps offer a quick primer, and certainly offer to introduce the client to a member of the community foundation team.

–Briefly mention that a donor-advised fund can be an effective alternative to a private foundation, thanks to fewer expenses to establish and maintain, maximum tax benefits (higher AGI limitations and fair market valuation for contributing hard-to-value assets), no excise taxes, and confidentiality (including the ability to grant anonymously to charities).

–Also mention that a donor-advised fund at the community foundation is frequently a more effective choice than a donor-advised fund offered through a brokerage firm (such as Fidelity or Schwab). That’s because, at a community foundation, the donor is part of a community of giving and has opportunities to collaborate with other donors who share similar interests. In addition, the donor is supported in strategic grant making, family philanthropy, and opportunities to gain deep knowledge about local issues and nonprofits making a difference. 

Finding the good, giving as a wealth strategy, and an open invitation

It can be hard to see the good in people as heartbreaking exceptions seem to dominate modern life, but it is worth remembering that philanthropy–”love of humanity”--is alive and well. A study at Stanford University indicates that a sense of community and calls to action help align people around common values. Indeed, high-profile examples of philanthropy, from Carnegie Hall to the manatees, help reinforce the notion that people can turn altruism into action through their leadership and financial resources. 

What’s more, nearly two-thirds of high net-worth philanthropists agree that charitable giving is part of their overall wealth strategy, according to a recently-released study by BNY Mellon reporting the results of a survey of individuals with investable assets of at least $5 million. Once again, the takeaway here for advisors is that it is important in any situation to at least ask whether the client would like to incorporate charitable giving into their financial and estate plans. If the answer is yes, the team at the community foundation is just a phone call away to provide guidance and serve as a sounding board. 

Your clients’ charitable intentions, coupled with the community foundation’s ability to structure donor-advised funds and other charitable giving vehicles to meet your clients’ financial and community impact goals, create many opportunities for us to work together. The offer is always open for our team to stop by your office over breakfast, lunch, or even as a midday break to exchange ideas. We’d love to help you help your clients make a difference in our community. 

QCDs, NIMCRUTs. and other reminders for advisors

Hello, and Happy May!

This month, our newsletter is heavily focused on tax and legal matters. As you and other advisors emerge from a busy tax season, we know that legislative changes, charitable giving vehicles, and even cautionary tales are topics that are likely to capture your interest.

As always, the community foundation is here to help you and your clients navigate the various options for charitable giving. We’ll help give you the insights and confidence you need to develop plans that enable your clients to provide the charitable support they intend while also keeping the clients’ activities well within the boundaries of the law.    

It is our honor and pleasure to work with you and your clients. We look forward to talking with you soon!

–Your Community Foundation

QCDs: Good news and important reminders

Qualified Charitable Distributions, or “QCDs,” have been in the news a lot lately, especially in light of proposed SECURE Act 2.0 legislation that passed the House of Representatives in March and is now pending in the Senate.

Through a QCD, starting at age 70½, your client can instruct the administrator of an IRA to direct up to $100,000 per year to a qualified charity. This helps your client’s tax situation because the client does not need to report the amount of the QCD as taxable income.

Here are four important reminders about QCDs:

–Even though the SECURE Act changed the Required Minimum Distribution (RMD) age to 72 from 70 ½, the QCD age is still 70 ½. 

–QCDs cannot be made to donor-advised funds, but your client can set up a field-of-interest or unrestricted fund at the community foundation to receive a QCD.

–Under a version of the proposed SECURE Act 2.0 legislation, QCDs would be indexed for inflation. In addition, proposed legislation would allow a client to make a one-time QCD of up to $50,000 to a charitable remainder trust or other split-interest entity.

–Finally, be sure to help your clients coordinate their QCDs with their Required Minimum Distributions. Proper planning will help avoid troublesome tax pitfalls. 

Please reach out to the team at the community foundation to learn more about QCDs and how your client can establish a fund to support financial and tax goals as well as charitable giving goals.

Income timing: A NIMCRUT could hold the key

Clients who own closely-held businesses, real estate, or even cryptocurrency may be good candidates for a particular type of charitable remainder trust known as a NIMCRUT, which is short for “Net Income with Makeup Charitable Remainder Unitrust.” 

The way it works is that your client transfers a highly-appreciated asset to a trust. The trust terms provide for the payment of a fixed percentage (at least 5%) of the trust’s value, revalued annually, to your client or another beneficiary. 

Here’s the key with the NIMCRUT: The terms of this type of trust also provide that if the trust’s income is less than the designated fixed percentage, the trust will only distribute the actual income. Later, upon the liquidation of the highly-appreciated asset, for example, the income distributions will be made up. 

In this way, not only does the NIMCRUT keep the highly-appreciated asset growing under favorable tax conditions inside the trust until it is sold, but it also allows your client to receive the higher income in later years, such as retirement, when the client’s tax bracket is likely to be lower. As with other types of charitable remainder trusts, when the term of the NIMCRUT expires, the remainder passes to charity. 

Some NIMCRUTs deploy a “FlipCRUT” feature which removes the net income limitation upon a triggering event (such as the sale of an asset or a date). This creates even more flexibility in timing income for your client.

Note that it’s wise to consider naming a public charity, such as a donor-advised fund at the community foundation, versus a private foundation, as the charitable remainder beneficiary of a NIMCRUT or other charitable remainder trust. This optimizes the amount of your client’s up-front charitable deduction when the trust is funded.

Social consciousness: Today's expectations of advisors

Especially over the last few years as social consciousness has increased, many of your clients have no doubt become more interested in how they can make a difference through their philanthropic activities, whether those activities include giving to favorite charities, volunteering, serving on boards of directors, purchasing products that support a cause, and respecting a sustainable environment.

As clients grow more in tune with social impact, they are expecting their advisors to be ready to help them structure and plan their charitable giving. What’s more, clients who receive charitable planning advice from their advisors tend to be more loyal and more willing to recommend their advisor to others, especially when that advisor is proactive in bringing up options for incorporating philanthropy into financial and estate plans. 

With that in mind, the community foundation is here to help you stay up to date with philanthropy topics so you can, in turn, have the conversations and deliver the services your clients are seeking. To that end, for an insightful look into the inner workings and current state of the philanthropy industry, we suggest skimming the written testimony that the Council on Foundations recently provided to the Senate Finance Committee. The Council, a major voice and advocate for philanthropy in the United States, notes that the current economic and legislative environment has created a “pivotal moment for nonprofits and their philanthropic partners.” 

The community foundation is also here to help you avoid treacherous situations as you create philanthropic plans for your clients.

Is big giving back?

Greetings! 

We’re honored to work with so many attorneys, accountants, and financial advisors who are committed to helping clients achieve their philanthropic goals. Every day, we are inspired by our donors–your clients–who frequently tell us how grateful they are for the strong working relationship between you, as their trusted advisors, and our team, as a trusted source for community knowledge and charitable gift planning.

In that spirit, we publish this newsletter to help you stay current on the charitable giving topics that are on the minds of your philanthropic clients, including tax developments that impact charitable giving. Our goal is to provide a valuable top-line run down and an open invitation to reach out to our team to discuss topics that catch your eye. We’d love to share more and add value to your work. 

In this issue, we’ll be covering tax legislation (actually, the lack thereof!), exploring the trend toward bigger charitable gifts, and reviewing the rules for gifts of artwork, especially in this era of NFTs.

As always, we’d love to hear from you! 

–Your Community Foundation Team  

So, what happened to tax reform? And what does that mean for charitable giving strategies? 

Last year’s heavily-debated versions of the Build Back Better Act called for tax increases that potentially could have impacted charitable giving. But, as 2022 gets into full swing, legislation that’s eventually passed may bear little resemblance to early iterations. In particular, debate over the cap on the deductibility of state and local taxes (“SALT”) has illuminated a parallel debate over whether the changes to the cap would impact charitable giving. At the moment, though, tax increases to support President Biden’s legislative agenda are still very much up in the air. 

In other tax news, advocates for charitable organizations are lobbying lawmakers to bring back Covid-19-related tax incentives, including the $300 ($600 for joint filers) so-called “universal” charitable deduction.

Meanwhile, taxpayers may find themselves in limbo over timing decisions for their gifts to charity, as well as other tax-sensitive transactions, creating ongoing discussions with advisors about whether to pursue “bunching” strategies or instead to wait for more clarity on the legislative situation.

Big gifts are getting bigger. How does that change your conversations with your clients?

Ranging from $175 million to a whopping $15 billion, the 10 largest gifts to charity in 2021 may have caught your clients’ attention. Not only do philanthropic gifts seem to keep getting bigger, but the future looks bright, too, with more than $84 trillion projected to be handed down in what may be one of the largest intergenerational transfers of wealth in history. Although most of that money will flow to heirs, projections indicate that charities could receive as much as 14% (nine percent in the form of bequests and the rest as lifetime gifts to charity). 

As your Baby Boomer clients plan their estates, keep that 14% in mind, especially as philanthropists at all levels are becoming increasingly intent on making an immediate impact on important causes instead of leaving behind perpetual philanthropic structures. 

The community foundation can help you develop an impact-focused philanthropy plan for your clients, including helping your clients “reverse engineer” the philanthropy structures that will be most likely to result in the difference your clients want to make in the world. 

Keep an eye out for clients who match these characteristics: 

--Families who have started to talk with you about multi-generational participation in philanthropy but do not yet have any formalized plans.

--Families who have publicly demonstrated a commitment to three or more charitable organizations.

--Families who own a multi-generational family business such that corporate giving and enterprise legacy have become intertwined.

--Families in which members across multiple generations appear to be actively involved in philanthropy discussions.

The team at the community foundation has the depth and breadth of experience to help you in these instances, and much more. 

When giving hard-to-value assets, creativity–and caution–are critical in the digital age

For some of your clients, the thought of giving artwork to a museum or other charity might have crossed their minds. Otherwise, in the estate plan you’ll build for the art collector, the choices largely boil down either to selling the pieces, or giving them to family and loved ones during life or through a bequest.

It is imperative to understand the tax consequences of each disposition scenario as you advise your clients about their collectibles. For example, clients may not realize that the higher capital gains rate of 28% generally applies to artwork and other collectibles–not the 20% rate typically applicable to sales of other types of capital gains assets. And even this higher rate has been the subject of some tax reform discussions. 

Indeed, many clients would prefer to hold onto their art collections, rather than sell during their lifetimes, in order to take advantage of the step up in basis upon their deaths. 

Charitable giving is an option here, too, and your client can potentially avoid capital gains and estate taxes by donating artwork to a nonprofit organization. Be very careful, though, because the rules are different depending on the type of charity (e.g., a museum versus a foundation) and whether the charity’s use is related to its exempt purpose (e.g., a museum versus an animal shelter). 

So, what happens if your client wants to give an NFT to charity? Which rules apply–the usual rules for non-cash assets, or the rules for donating artwork? The law is equal parts emerging, fascinating, and intricate! As IRS guidance emerges–and similar to the tax treatment of gifts of art collections–the proper tax treatment likely will hinge on factors such as how the NFT will be used, whether the donor is a “creator,” and whether the NFT is marketable and easily converted to cash. 

The team at the community foundation thrives on complex giving opportunities. Whether your clients’ estates include artwork, digital assets, real estate, or closely-held stock, please reach out. We’d love to help you evaluate the options for achieving both your clients’ tax goals and charitable planning goals. 

A fresh start: Family businesses, hard-to-value assets, and transfer of wealth

We’re ready for a fresh start. How about you? 

Alas, it’s still not clear what might happen with tax reform given the fluid status of the Build Back Better Act. But that doesn’t mean we can’t begin 2022 with enthusiasm for helping philanthropic individuals and families achieve their goals for improving the quality of life in our region. Indeed, according to a 2021 Harris Insights & Analytics survey, 60% of Americans are expecting their taxes to go up in the next four years. And most of them are looking for ways to minimize taxes now, rather than waiting for retirement. 

With that in mind, we’re kicking off our newsletter series this year with topics that will help you more easily start conversations with your clients about their philanthropic plans by raising the issue not in a vacuum, but within the context of their families, their businesses, and a charitable giving marketplace that continues to deliver twists and turns such as cryptocurrency and NFTs.

Thank you for allowing us to help you serve your clients. We are honored, and we’re sending our best wishes for a happy, healthy, and productive year for you, your clients, and the community we all love. 

Your Friends at the Community Foundation 

Philanthropy and the family business: Ripe for great questions 

More than half of the country’s GDP is generated by the 5.5 million family-owned businesses in the United States. Profits aren’t the only priority for most family businesses; indeed, the vast majority of family business owners report that other factors, such as culture, community, charity, and values, are also important to the business. Although it is not surprising that philanthropy is a vital part of the family business fabric, setting up the right structure to leave a legacy is not a cakewalk. As you advise a business-owner client, consider sharing questions that might help your client create or grow an effective corporate philanthropy program within the family enterprise.

Getting organized

Does the company have a strategy or system for prioritizing sponsorship requests, charity event invitations, and requests for donations? Is the strategy based on the owners’ values, along with employee input? What is the communication strategy for maintaining positive relations with the charities whose requests the company turns down? How are requests from employees handled? Could a corporate donor-advised fund at the community foundation help streamline administrative load? Is there a corporate foundation in place and if so could it be streamlined into a corporate donor-advised fund to save administration hassles and better leverage tax strategies?

Getting employees engaged

If the company has a community engagement program, how popular is it? For example, is there a matching gifts program and is that program being utilized as expected? Are employees eager to attend community events to sit at the company’s tables, or is it sometimes hard to fill seats? Are there opportunities for employees to volunteer together at local nonprofits? Has the company surveyed employees to learn about their favorite causes and the ways they prefer to give back (e.g., donate money, volunteer, serve on boards)? 

Getting the word out

How is the company letting employees and other stakeholders know about its community commitments? Is it a priority to share civic engagement with the outside world, such as through a page on the company’s website, or is the company’s approach to stay under the radar? Do the employee handbook and recruiting materials describe community engagement opportunities for employees?  

Helping your clients ask the right questions can make a big difference in the success of their corporate philanthropy programs.

Related, and importantly, it is wise to remind your clients that the sale of a closely-held business creates strong opportunities for tax-savvy charitable giving–and that it is critical for the business owner to plan ahead.  

As always, the team at the community foundation is here to help you serve your family business clients by setting up a corporate donor-advised fund, assisting with a matching gifts program, creating donor-advised funds for employees, collaborating on a philanthropic component of a business sale, and much, much more.

Giving hard-to-value assets: It’s not just for real estate anymore

You are no doubt familiar with the many benefits of giving hard-to-value assets to a charity–and especially to a client’s donor-advised fund at the community foundation. Because the community foundation is a public charity, your client is eligible for the maximum allowable tax deduction for their contributions. This is because a client typically can deduct the fair market value of the asset given to the fund, and, furthermore, when the fund sells the asset, the community foundation (as a public charity) does not pay capital gains tax. This means there is more money in the donor-advised fund to support charities than there would be if your client had sold the hard-to-value asset on their own and then contributed the proceeds to the donor-advised fund.  

Individuals can take advantage of giving hard-to-value assets, and so can businesses. For example, when a business is sold, its owners may find themselves with artwork, insurance policies, or real estate on their hands, any of which can be donated to a donor-advised fund with the favorable tax treatment described above. Gifts of real estate have long been popular (although still underutilized) gifts to charity, sometimes making up nearly 3% of the value of all charitable contributions in any given year. 

And the universe is expanding! In 2021, gifts of novel non-cash assets made their mark as a viable way to fund donor-advised accounts and other charitable efforts. Cryptocurrency is one type of asset that clients are now giving to charities, which was to be expected given the rise in popularity of Bitcoin and other currencies. But advisors might not have expected to see NFT (non-fungible token) auctions result in more than $1 million in 2021 Giving Tuesday charitable donations processed by Giving Block.  

Will NFTs be the next hard-to-value asset donation craze? That remains to be seen. In the meantime, though, the team at the community foundation is staying close to the trend. We can help your charitable clients make any type of gift by guiding you and your client through the gifting process and, in the case of crypto, collaborating with well-vetted intermediaries like Giving Block, so that your client’s donor-advised fund at the community foundation can grow and support your client’s favorite charities.  

Notably, we will be watching closely as more information becomes available about the environmental cost of donating ephemeral assets because of the stress that mining and transferring Bitcoin and other cryptocurrencies place on the energy grid. The toll is so great, for example, that Greenpeace is backing away from accepting gifts of cryptocurrency. But if the $23 billion in NFT sales generated in 2021 (compared with less than $100 million in 2020) is any indication, philanthropy may see significant NFT activity in the years ahead.

Transfer of wealth: Following the money

“The greatest wealth transfer in modern history has begun,” according to a mid-2021 report in the Wall Street Journal. And, with tax reform’s big bite into estate values off the table, at least for now, many of your older clients may be thinking seriously about their legacies.

And these legacies will be significant. As of March 31, 2021, according to data collected by the Federal Reserve, Americans in their 70s and older had a total net worth reaching almost $35 trillion. By 2042, an estimated $70 trillion will change hands, including an estimated $9 trillion flowing to charities, according to research conducted by Cerulli Associates. 

As you advise an older client, an important part of the conversation will be to determine the best charitable giving vehicles to achieve your client’s community goals, particularly evaluating the potential role of a donor-advised fund or private foundation. Increasingly, your clients are learning about their options in mainstream media and likely have a greater level of awareness about charitable giving options than ever before, especially in the wake of the recent twists and turns concerning potential tax reform. 

Here are key points to keep handy for those conversations (as you pick up the phone to call the community foundation team!):

–A donor-advised fund at the community foundation costs nothing to set up, and ongoing fees are minimal. 

–A donor-advised fund can be created quickly–within a week or even days. A private foundation, by contrast, requires establishing a legal entity through state and IRS filings. 

–Donating hard-to-value assets to a donor-advised fund delivers better tax benefits (deduction of fair market value) than a gift of the same assets to a private foundation (deduction of cost basis).

–A client can deduct a greater portion of AGI (e.g., cash deductible up to 60% of AGI) with a gift to a donor-advised fund than with a gift to a private foundation (e.g., cash deductible up to 30% of AGI). 

–Ongoing operations of a donor-advised fund through the community foundation are very easy, with no tax filings required. 

–Sometimes, both a private foundation and a donor-advised fund are useful tools to meet a client’s charitable giving goals. The team at the community foundation team can help you develop a structure for your client that maximizes the benefits of each vehicle within an overall philanthropy strategy.

Next, consider encouraging your clients to make charitable giving part of “living large” in their golden years, especially in light of an emerging trend that some retirees are spending their money instead of giving it away.

Finally, remind your clients that the best time to set up their philanthropic plans really is right now. By being proactive, your client has nothing to lose and everything to gain in ensuring that their charitable wishes are carried out. To that end, the community foundation regularly works with advisors helping clients who wish to establish “shell funds” to receive bequests after the clients pass away. A shell fund allows a client to describe charitable intentions, including naming advisors and suggesting nonprofits to receive fund distributions, to guide the heirs through the client’s charitable legacy. Your client can name the fund, and even provide that the community foundation’s board of directors work with advisors to make grants and evaluate impact. A shell fund agreement can be modified anytime before your client’s death. 

it's time TO CELEBRATE TAX PLANNING

What a year! (Or should we say deja vu?)

Last December, we heard from our advisor friends that clients were hoping to maximize the charitable giving tax breaks included in the coronavirus legislation. You also reported that clients had expressed curiosity about how tax laws might change in the coming months, and at the same time clients were increasingly interested in involving their extended families in charitable giving.

Here we are, twelve months later, and we’re hearing from you that these three topics are still top of mind--but with a couple of twists, which we’ll be covering in this newsletter.

With some of the mystery now eliminated regarding potential tax reforms, we know your clients are now looking at how to move forward creatively with specific charitable planning techniques, especially donor-advised funds as these vehicles are increasingly in the news.

Family philanthropy conducted from multiple locations is no longer daunting to many of your clients. Video conferencing has revolutionized the opportunities for families to connect about charitable priorities. Now, the conversation is turning toward how to make family philanthropy fun and rewarding for everyone, especially during the holiday season.  

Thanks so much for the opportunity to work together! The team at the community foundation is honored to help you serve your clients.

The ever-popular, handy-dandy, year-end charitable giving checklist

We’ve heard that many of you appreciate a quick checklist for charitable giving reminders each December. We know you receive this type of information from many sources, and frequently in great detail. It is our goal to break things down into a few simple points (below are three). To dive deeper, we encourage you to reach out to our team. We’ll jump in to help! 

First, in the midst of recent flurry surrounding the Build Back Better legislation, clients won’t want to forget about the charitable giving provisions from 2020 COVID-19 relief legislation that carried over to 2021, notably the $300 “universal deduction” even for non-itemizers. Helpful to itemizers is the allowance for cash contributions to charities to be deducted up to 100% of adjusted gross income. This allowance creates an ideal opportunity for your clients to “bundle” or “bunch” their charitable gifts this year, taking full advantage of the limited-time ability to offset significant levels of income. Donor-advised funds are not eligible recipients of these cash contributions; however, designated funds and field-of-interest funds at the community foundation can qualify and are very useful philanthropy planning tools. 

Second, never assume that your clients will remember the benefits of donating highly-appreciated securities to a charitable organization or fund at the community foundation. It seems obvious to those of us in the business, so to speak, but clients do not live and breathe the tax laws like we do. Remind clients that frequently the best way to fund their charitable giving is through highly-appreciated assets. 

Third, let your clients know that charitable giving is still an important priority and that most people who give to charity still plan to do so, even this year after the wild ride of the pandemic. Indeed, clients might appreciate seeing the data, including a study recently released by Classy showing that 84% of donors planned to give to charities at the same or higher level this year as they gave in 2020. 

And (not so) suddenly, it’s a thing: What’s up with donor-advised funds?

For nearly 90 years, charitably-minded individuals and families have established donor-advised funds to help carry out their philanthropic wishes. Popularity of the donor-advised fund steadily grew, especially beginning in the 1990s, eventually resulting in official recognition in the Internal Revenue Code under 2006 tax law updates. Today, over one million donor-advised fund accounts hold nearly $160 billion in charitable assets, according to the latest numbers.

The growth of the donor-advised fund as a useful charitable giving tool has made this vehicle something of a celebrity. You and your clients no doubt have begun to see articles about donor-advised funds pop up in mainstream financial publications, as well as in academic journals. And yes! We read those articles, too! A top priority for our team is keeping up with proposed legislation and commentary about charitable giving, including particular vehicles such as donor-advised funds.

As you talk with your clients about options for their charitable giving plans, please reach out. We would be happy to share perspectives and ideas that take into consideration current trends and legislative developments. 

To that end, you and your clients may find it helpful to review the types of funds available through the community foundation, which include donor-advised funds and much more.

First, as you’re likely aware, a “donor-advised fund” enables a client to establish a specific account for charitable giving. Your client makes a tax-deductible contribution of cash or other assets to the fund, and then recommends grants to favorite charities during the current year and in future years depending on the client’s goals and plans.

Second, the community foundation has its finger on the pulse of the community’s most pressing issues. An “unrestricted fund” provides your client with an opportunity to support community needs that can’t be identified until the future. One of the biggest benefits of a community foundation is its perpetual structure that allows support to nonprofits to evolve over time as priorities in the region shift. 

Third, to target charitable giving to specific areas of community need (such as education, health, environment, or the arts), your client can set up a “field-of-interest fund” to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff. Plus, field-of-interest funds can be a wonderful alternative to a scholarship fund and accomplish a client’s charitable goals even more efficiently and effectively.

Fourth, a “designated fund” allows a client to focus charitable giving on a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to the terms the client establishes. 

Helping families stay connected across the miles and generations: There’s a gift for that! 

Your philanthropic clients will thank you for suggesting they consider giving the gift of giving (say that three times fast!) in the form of a charitable fund instead of the more typical “I made a gift to my favorite charity in your honor.” 

More and more parents and grandparents (and friends and colleagues) are giving a child, grandchild, friend, or co-worker a charitable fund, pre-established and pre-funded, in the name of the recipient. Frequently taking the form of a donor-advised fund, this gift allows the recipient to experience the benefits of working with the community foundation to support important causes. 

The team at the community foundation can help your client create a gift fund from soup to nuts, including granting the recipient online access. Your client can literally put a bow on the carefully rolled up fund document, sign a card listing the URL and login credentials to view the fund online, and present the package to the child, grandchild, friend or colleague as a gift. Both giver and receiver will love the experience.

Educational opportunities are a natural follow up to this type of gift. For example, your client can work with the community foundation to find resources on the community foundation’s website and structure a family giving session over Zoom where participants learn the basics of charitable giving and are introduced to key issues facing communities in our region and across the country. This type of experience helps the family’s values stay intact across generations. 

Finally, never underestimate the power of philanthropy to help you build relationships with multiple client generations. The team at the community foundation has the tools you need to inspire Baby Boomers, Gen X, Millennials, and Gen Z by creating meaningful and lasting connections to our community, charities, and causes. Although useful in some cases, a GoFundMe or Facebook fundraiser simply cannot deliver the engagement and loyalty that have long been hallmarks of our dedication to helping your clients of all ages make a lasting impact that is as meaningful to them as it is to the causes they support.

Strategies and tax planning tips for your philanthropic, affluent clients

We can only imagine how anxious your clients must be to gain clarity about tax reform so that they can implement planning strategies, take care of the charitable organizations they care about, and move on to enjoying the holidays with friends and family. 

That's why this issue of our newsletter drills down into three areas we know are top of mind for you and your charitable clients:

1. Tax reform: What's the latest, and how could it impact charitable giving techniques?
2. Strategies of the wealthy: How much--and how--are billionaires deploying their wealth to help nonprofits?
3. Year-end giving: Remind me again what I should be telling my clients?

As always, please contact us directly if we can be of assistance as you serve your philanthropic clients. We are thankful for you!

--Your friends at the community foundation

Relax a little (maybe?): What’s off the table, what’s still in play, and what your charitable clients need to know now about tax reform

Late last month, the White House released a proposed $1.75 trillion revenue package, putting to rest (at least for now) some of the uncertainty as to how sweeping tax reform could upend wealth planning strategies via changes to top marginal rates, a restructuring of the capital gains tax, and lower estate and gift tax exclusions, all of which have been heavily discussed and debated over the last several weeks. For now, those particular big changes appear to have been dropped. 

Attorneys, accountants, and financial advisors who represent high-net worth clients are, however, keenly aware of how the just-proposed legislation still could pack a punch:

1. Where charitable giving is concerned, the proposed new surtax (modified from earlier versions) is not something that can be avoided or reduced through charitable deductions. That is because the proposed 5% surtax on taxpayers with more than $10 million in adjusted gross income is assessed on just that--adjusted gross income. Below-the-line deductions won’t help. Furthermore, an additional 3% surtax has been proposed for taxpayers with more than $25 million in AGI.

2. In addition, under this new proposal, pass-through entities, such as S corporations and partnerships, are still the subject of a 3.8% Net Investment Income Tax, as was the case under the prior version of the revenue package. Under the new proposal, this tax would be expanded to taxpayers with taxable income of $400,000 ($500,000 for joint filers) or more.    

3. Of interest to advisors who represent businesses and business owners, under the proposed new law, a 15% “corporate minimum tax” would apply to “book income” of corporations earning profits greater than $1 billion. For your clients who’ve historically relied on income tax credits, this is an important provision to watch because income tax credits would not be as valuable as they are now. 

4. Related, look out for a parallel increase to the global minimum tax rate, especially for corporate clients who have an eye on relocating headquarters to foreign countries. And under the new proposed laws, when a corporation buys back its own stock, it would be taxed like corporate dividends--plus a new 1% excise tax.

5. Finally, effective as of September 13, 2021 if the legislation is passed as written, high net-worth clients could be significantly impacted by the proposed limitation on “stock exclusions” under Internal Revenue Code Section 1202. For taxpayers with adjusted gross income of $400,000 or more, and for estates and trusts, only the 50% exclusion provision would remain. The 75% and the 100% exclusion would no longer be available.

The buzzword is “billionaire”: How tax reform discussions have pulled complex charitable planning strategies into the spotlight

Forbes reports that the latest headcount of American billionaires checks in at 724. That number surprises some people, and for different reasons. Many are surprised to learn that the number is so low, when the word “billionaire” has been used so frequently lately in discussions about changes to the tax laws. Others are amazed at the vast wealth created by not just dozens, but hundreds, of individuals.

Both reactions have sparked interest in how billionaires and other ultra high-net worth people structure their estate plans and support their favorite charities. Even if your client base doesn’t include one of the 724 American billionaires, it is still well worth your time to spend a few minutes getting familiar with this topic so you can carry on a conversation with curious clients. 

Here’s how to get up to speed:

1. Forbes compiles a list of the 25 most philanthropic billionaires. Scan it so that you’re generally aware of how this group conducts its charitable giving activities.

2. Know the basics of grantor retained annuity trusts and charitable lead trusts, especially because both vehicles have been the subject of conversation in the ongoing tax reform dialogue.

3. Understand the core mechanics of ultra high-net worth wealth transfer strategies. You might be surprised that what you learn helps you structure your own clients’ estate plans.

4. Internalize the old saying “No one gives away a dollar to save 50 cents.” In other words, no matter how aggressive the planning strategy and the resulting tax savings, your clients almost certainly would have more money for themselves and their families if they didn’t give money to charities. 

5. It flows naturally from item 4 that your clients probably don’t take their charitable giving lightly. Clients intend for their charitable dollars to make a difference in the causes they care about. The community foundation has its finger on the pulse of the needs in our region and which organizations are helping and how. Put us on speed dial! 

Year-end giving: Repeat, repeat, repeat

It's the season for email newsletters hitting your inbox with tips for tax planning. We get it! With so much information flying around for your clients, too, we highly recommend that you cut through the noise and mention four key tax strategies to your clients at least twice, and ideally three times, before late December: 

1. Don’t let clients miss out on the few provisions of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act that carried over to 2021, including the ability to deduct up to 100% of adjusted gross income (AGI) for cash gifts made directly to qualifying charities and the “universal” charitable deduction of $300 per taxpayer ($600 for a married couple). 

2. Unlike in 2020, when pandemic relief laws offered a tax break, this year your clients have to take required minimum distributions from their qualified retirement accounts. Especially for clients who take the standard deduction, you ought to consider a qualified charitable distribution, which allows eligible individuals to donate up to $100,000 directly from individual retirement accounts to a qualified charity. The community foundation is happy to help your client identify a qualified charity or structure a qualifying fund to receive a distribution.  

3. “Bundling” or “bunching” multiple gifts into tax year 2021 can help your clients who have had exceptionally high incomes this year. Donor-advised funds at the community foundation are particularly useful in these situations. We’d love to discuss this option! 

We know you strive to identify the optimal tax strategies for each client’s charitable giving. As always, please contact us to find out how we can make year-end tax savings as frictionless as possible for you and your charitable clients.   

What's trendy among charitable clients? It may surprise you.

“The simplification of anything is always sensational.”

Gilbert K. Chesterton

Attorneys, accountants, and financial advisors tell us it’s getting harder to discern what’s relevant to their charitable planning work and they appreciate email updates like ours that are curated to cover the bases. 

As always, our team builds this newsletter so that you can skim the material in 5 minutes or less to see what catches your eye. We provide links for further reading. You might even find a few of the resources suitable to share with your clients.  

This issue features updates in three areas:

1. Trends that inform what your clients are thinking even if they aren’t saying it

2. Pending legislation that could impact charitable giving strategies

3. Recent IRS actions illuminating charitable tax planning pitfalls

Please contact us directly if we can be of assistance as you serve your philanthropic clients.  

Trends that inform what your clients are thinking even if they aren't saying it

Hot off the press, the 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households confirms that wealthy families are as committed as ever to the nonprofit sector and community causes. Of the 1,626 households surveyed with annual income of at least $200,000 or a net worth of at least $1 million (not counting a primary residence), 88% gave to at least one charity in 2020. Indeed, average giving by this demographic grew to $43,195 from $29,269--a 48% increase--between 2017 and 2020. 

The motivations and preferences behind that giving are also changing. Here’s how: 

—For the first time, affluent donors care as much about supporting the issues (44%) as they care about supporting the nonprofit organizations themselves (45%). In the past, most affluent donors have put far more weight on the organization when considering charitable giving options. 

—The issues themselves are shifting, too. For example, more than 20% of affluent households supported social and racial justice causes, and impact investing nearly doubled, during the period covered by the study. 

—Diverse donors and younger donors are beginning to prefer structured giving vehicles, such as donor-advised funds, over direct giving to operating charities.

—Affluent volunteers give twice as much as affluent people who don’t volunteer. 

—Affluent philanthropists are becoming more vocal about the challenges they face when making charitable giving decisions, notably:

• Figuring out what causes they care about and where to make donations to support those causes (40%)

• Figuring out a charitable giving budget and how much they can afford to give (32%)

• Figuring out how to measure the results of their giving to be sure it’s making a difference (24%)

What most affluent households are not worried about, however, according to the study, are potential changes to the income tax rules. Indeed, 78% say their giving levels would stay the same or even increase if they could not deduct contributions. 

Pending legislation that could impact charitable giving strategies

Even with a government shutdown averted (at least for now), there are still plenty of legislative loose ends that we’ll help you keep an eye on. Changes could directly or indirectly impact your clients’ overall charitable and estate plans. 

Here’s what we’re tracking:

1. General economic concerns if the debt ceiling is not raised

2. Implications of the infrastructure bill on the nonprofit sector as a whole

3. Specific tax changes that could occur under the Build Back Better plan 

4. Potential expansion of charitable deduction opportunities for non-itemizers

If and when these or other legislative actions edge closer to becoming laws that could impact your clients’ charitable planning priorities, we’ll provide an update. 

Regardless of what happens with the legislative agenda, we’re encouraged that the role of community foundations has become increasingly important in supporting your clients’ desires to improve the quality of life in the communities they love. (On that note, you might enjoy this inside baseball book excerpt as much as we did!)

Recent IRS actions illuminating charitable tax planning pitfalls

It requires a keen eye to spot unintended negative consequences of a well-meaning client’s charitable giving strategies! This fall, we suggest you take note of three cautionary tales: 

1. Clients can no longer “hide” with confidence behind a so-called blocker LLC to avoid sticky self-dealing rules when a note is transferred to a private foundation as part of a tax-savvy charitable estate planning structure.

1. Although rarely imposed, intermediate sanctions on excess benefits are a real thing if a disqualified person attempts to use influential muscle to access financial resources. 

1. Conservation easements--especially those of the syndicated variety--continue to land on the hot seat. 

Advisors' roles: Gifts of life insurance and closely-held stock

A personal note to our advisor colleagues

The community foundation is honored to work with you and your clients to structure charitable giving plans and establish funds that achieve both your clients’ charitable objectives as well as address our region’s greatest needs.

The professionals at the community foundation intimately understand the issues facing our community and how grants from funds can be impactful. We do this through deep knowledge of our area’s nonprofits, due diligence to ensure that each charitable dollar helps as many people as possible, and an unwavering commitment to investing in our community for the long term.  

As we enter into an era of potential tax reform, we pledge to keep you informed of legislative developments that will require you and other advisors to navigate the important distinctions between community foundation donor-advised funds and commercial donor-advised funds, as well as the differences between donor-advised funds and private foundations. 

No matter what legislation is passed and when, the community foundation team is here to educate you and your clients. We’ll also keep you posted on charitable giving options that are tax reform-neutral and suggest ways to leverage pre-legislation windows of opportunity. Please reach out with any questions you’d like to be sure we address in our advisor communications.

In the meantime, we’ve focused this newsletter on three legal doctrines: a fidiciary’s personal liability, ”incidents of ownership” in gifts of life insurance, and the nuances of giving S Corporation stock to charities--all of which represent important, decades-old bodies of law that can easily be overlooked in the rush of an advisor’s day-to-day work with clients. 

Advisors' fiduciary obligations can get personal

With charitable bequests on the rise, and the possibility that more clients will be subject to Federal estate taxes in the future, many attorneys, accountants, and financial advisors are refreshing their recollections on the requirements of advising and administering taxable estates where one or more charitable organizations is a beneficiary.

Advisors’ fiduciary responsibilities to charitable beneficiaries are similar to fiduciary responsibilities to a decedent’s family members and other individual beneficiaries. Where a charity is a residuary beneficiary, for example, a fiduciary must pay careful attention to expenses and liabilities that impact the amount the charity ultimately receives. These liabilities and expenses include taxes, debts, fees, and costs incurred by the executor or trustee. A fiduciary should expect charity remainder beneficiaries to pay as much attention to the bottom line as family members. 

Not only must a fiduciary watch expenses to maximize the remainder beneficiaries’ interests, but a fiduciary must also be careful to avoid making distributions too early and therefore potentially becoming personally liable if estate obligations surface later. This was the unfortunate situation in Estate of Lee, T.C. Memo. 2021-92, where the fiduciary ultimately was found by the Tax Court to be personally liable for amounts due under a Federal tax lien.

As you assist your clients with estate planning that involves charitable giving, consider encouraging your client to talk with the charitable organization about the intended bequest so that expectations are well-documented, even if the bequest likely will not materialize until well into the future. Remember, too, that some charitable clients can benefit from establishing a fund at the community foundation to receive and administer their bequests to charitable causes. In that case the professionals at the community foundation can assist as you structure a bequest in the client’s estate plan.

Finally, and critically, ensure that the legal documents or beneficiary designation forms reflect the correct name of the charity. There are more than 1.5 million charitable organizations in the United States, and many have similar names. If you have any questions about which charity your client intends to benefit, ask both the client and the charity to confirm the exact name and location of the organization. 

Five pointers for gifts of life insurance to charities

“Incidents of ownership” are three powerful words in estate planning where life insurance is concerned. The phrase is a key component of Internal Revenue Code Section 2042, which provides for the inclusion in a taxpayer’s gross estate, for estate tax purposes, of the proceeds of insurance policies on the taxpayer’s life under two circumstances. First, if the proceeds are actually received by the estate, they are included. Second, proceeds are included in an estate when the money is received by named beneficiaries other than the estate if the taxpayer died possessing “incidents of ownership” in the policy.

Section 2042 is the reason an estate planning advisor typically strives to ensure that a client does not own life insurance policies on the client’s own life. This is frequently accomplished by creating an irrevocable life insurance trust. As an alternative, many clients give life insurance policies to charitable organizations, not only for the estate tax benefits, but also for potential income tax benefits during the client’s lifetime.

Before you assist your client with a gift of life insurance to a charity, here are five pointers:

Check state law first. Most--but not all--states allow transfers of life insurance policies to a charity. 

Request change of ownership and change of beneficiary forms from the insurance company, and make sure you have the right forms. The paperwork is not always user-friendly. There are instances where a taxpayer completed the wrong set of forms and thus failed to accomplish the intended transfer. The charity will need to be the policy owner and, unless the charity intends to surrender the policy, also be the named beneficiary.

Carefully calculate the charitable income tax deduction for the gift of the life insurance policy to the charity. The taxpayer is eligible for a deduction equal to the lesser of the policy's value or the taxpayer’s basis (usually the total amount of premiums paid). The “value” of the policy is computed using the replacement cost or the “interpolated terminal reserve” plus unearned premiums.

Be sure to check for loans against the policy to avoid an income tax event for the taxpayer. 

Finally, do not run afoul of the “insurable interest” rules, which can come into play where the charitable entity pays the premium on a life insurance policy transferred to or secured by the charity on your client’s life.

These three factors are a big deal in gifts of S Corp stock to charity

S Corporation, or limited liability company? That’s a question many family businesses grapple with in their formative stages. For years, S Corporations were frequently preferred for small businesses that wanted the protection of a corporate structure versus a traditional partnership. In the 1990s, limited liability companies, or LLCs, rose in popularity because they offered both favorable tax treatment and corporation-like protections. In recent years, lower tax rates have contributed to the resurgence of traditional C Corporations as a viable structure for a business.

Since the adoption of laws and regulations decades ago making them advantageous, many S Corporations and LLCs have grown into thriving, highly-valuable businesses that are owned by your clients and are therefore now the subject of your estate planning work. So, too, have grown many clients’ desires to unlock these assets to fulfill charitable goals.  

Many advisors find themselves discussing the benefits of donating S Corp stock to a charity prior to the sale of a business, but rarely do advisors feel prepared for that discussion with a client. That’s why it is important to be generally aware of the rules before the topic arises in a client meeting. A discussion with your client is especially important as business succession plans are crafted because many business owners want to minimize tax liability and also give back to the communities where their businesses have flourished. As an advisor, you have a responsibility to understand what might be possible. 

Donating S Corp stock to a charitable organization is an important option that your clients will want to consider, and understanding the complexities is critical. Three factors are particularly important:

This idea must be addressed early in the process of business succession planning, especially prior to any formal discussions about a sale. Indeed, the IRS is known for its keen eye in spotting transactions that could be construed as resulting in “anticipatory assignment of income,” especially where a charitable deduction is involved. At the same time, many charitable organizations prefer not to hold hard-to-value assets like S Corp stock for more than a few years. Balancing these factors requires thoughtful planning and timing.

Private foundations and certain donor-advised funds at trust-form institutions (which then trigger the trust tax rates) are permissible shareholders of S Corp stock. Moreover, public charities have been eligible S Corp shareholders since 1998. Before you explore an S Corp gift to a charity, be sure to review the rules related to permissible S Corp shareholders.

Charities holding S Corp stock may be subject to Unrelated Business Taxable Income rules. Be sure to show your client various alternative calculations to determine the most cost-effective structure for each transaction alternative. 

Seeking solid ground: Guiding charitable clients through 2021’s choppy waters

As the Delta variant threatens pandemic recovery, and talk of tax reform bubbles up more and more frequently, it’s no wonder your clients are on edge. For attorneys, accountants, and financial advisors like you who counsel families on philanthropy planning, 2021 seems to have generated more questions than answers. 

In this issue of our advisor newsletter, we’re covering three topics illustrating just how important it is to stay on top of trends in charitable planning: So-called "insider giving," donor privacy, and out-of-the-box legacies.

As always, you’re in good hands. Our goal at the community foundation is to serve as a steady, reliable partner and as a source of timely information and ideas that enable you to serve your clients without missing a beat, even in the face of uncertainty. 

“Insider giving” and seats at the table: A team approach is essential to crafting an effective philanthropy plan

As corporate valuations soar, you may be getting more frequent questions from executives at publicly-traded companies about the tax benefits of transactions involving highly-appreciated stock. Proper planning is critical to optimize the tax aspects of a transaction, but no advisor should go it alone. A client’s attorney, accountant, and financial advisor should be at the table together to ensure that all parties are coordinated and unintended negative consequences are avoided. 

For transactions involving charitable giving, consider inviting a knowledgeable professional from the community foundation to participate in the planning. Not only can the community foundation offer structures to streamline administration, create tax efficiencies, and maximize your client’s charitable wishes, but the community foundation also can serve as a source of up-to-the-minute developments in charitable tax planning policy and regulation.

An excellent example of this will be discussed in an upcoming issue of the Duke Law Journal on the topic of “insider giving.” A study conducted by University of Michigan professors found that charitable gifts of stock by shareholders who own 10% or more of a company’s shares tend to be “suspiciously well-timed.” Thus, charitable transactions involving securities may very well begin to receive more scrutiny from the SEC.

Our team is watching this and other developments closely to help you help your clients succeed. With the community foundation at the table during estate planning meetings involving philanthropic strategies, emerging pitfalls such as "insider giving" are more likely to be avoided.  

Donor privacy: Ongoing concern for a common client priority

In an era of social media and intense polarization of rhetoric, it’s no wonder so many charitable individuals and families choose to give to their favorite causes anonymously. And, bolstered by the United States Supreme Court’s decision last month in favor of donor privacy (affirming a position advocated by parties across the political spectrum), this trend is likely to continue. 

At the community foundation, we make it easy for you to help your clients who wish to give anonymously by establishing a charitable giving fund. For example:

• Your client can select a name for the fund that is something less obvious than their own. For example, instead of the “Sam and Vera Barker Fund,” your client can name the fund the “SVB Fund,” “Desert Family Legacy Fund,” or whatever the client would like. 

• Sometimes your client will wish to recommend that certain grants (but not all grants) from a fund be issued anonymously. The community foundation offers your clients the ability to opt into anonymity on a grant-by-grant basis. 

• Your client can rest assured that no solicitations will flow directly to them; the community foundation handles all correspondence related to nonprofit grants from the fund.

• The community foundation does not disclose information about your client or the fund to any third party, nor is detailed information available through a Form 990. 

Outside the box: Legacy combinations you might overlook

As you’re developing estate plans for your charitable clients, remember that the community foundation is happy to help structure a hybrid gift in which a personal component is paired with a charitable component. 

For instance, the charitable remainder trust ("CRT") is a popular tool because it allows your client to generate a lifetime (or term of years) income stream, with the remainder automatically flowing to a nonprofit organization. Because the trust is irrevocable, an immediate income tax deduction is available for the present value of the future gift to charity.

But the CRT is not necessarily the end of the story. Many charitably-minded families elect to name their fund at the community foundation as the remainder beneficiary of a charitable remainder trust, thus creating a lasting legacy. This is especially the case when the fund is established as an endowment to dynamically support the most pressing community needs at any given time, make ongoing annual grants from the fund’s income to specific organizations your client selects, or provide regular funding to causes your client wants to support in perpetuity.  

Another example of a hybrid gift structure is a pet trust. A typical pet trust frequently does not qualify for a charitable deduction because funds are designated to support a client’s own pet. The community foundation, however, can work with a local animal shelter to create your client’s bequest such that both the pet and the nonprofit organization are supported and your client’s estate is eligible for a tax deduction for the portion of the gift that benefits the nonprofit organization as a whole.

501(c) what? Helping clients deconstruct the tax rules for charitable giving

Sorting through jargon to determine deductibility 

When tax season rolls around each spring, a new crop of questions may arise concerning clients’ gifts to various organizations and whether those donations qualify as tax-deductible charitable contributions.

Keep in mind that Section 501(c) of the Internal Revenue Code lays out the requirements for organizations to be considered tax-exempt--a status for which an organization must seek IRS approval. Tax exemptions apply to certain types of nonprofit organizations, but status as a nonprofit (which is a state law construct) does not necessarily mean that the organization will be exempt from Federal income taxes.

Furthermore, even under Section 501(c), there are different types of nonprofits that are recognized by the IRS as tax-exempt. To qualify under the Internal Revenue Code Section 170 charitable deduction for gifts to Section 501(c)(3) organizations, for example, the recipient must be organized and operated exclusively for “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.” “Charitable,” according to the IRS, has a very narrow definition.   

No doubt, many of your clients not only support 501(c)(3) charities, but also social welfare groups organized under Section 501(c)(4). Examples of social welfare groups include neighborhood associations, veterans organizations, volunteer fire departments, and other civic groups whose net earnings are used to promote the common good. Donations to social welfare groups are tax deductible in only certain cases (e.g., gifts to volunteer fire departments and veterans organizations). Chambers of commerce and other business leagues fall under Section 501(c)(6); donations to these entities are not tax deductible. 

If you have any questions about the tax deductibility of your clients’ contributions to various organizations, please reach out to the team at the community foundation. We are immersed in the world of Section 501(c) every single day and are happy to help you navigate the rules. 

“If not 501(c), then what?”: Cautioning clients about crowdfunding 

What if your clients make donations to entities that don’t fall under a specific section of the Internal Revenue Code, but feel “charitable” nonetheless because the dollars are helping people in need? Perhaps a client has helped set up a dedicated account at a bank to provide scholarships to the children of an accident victim, or even participated in a GoFundMe fundraiser to help a specific family. These vehicles, along with other crowdfunding platforms, typically do not meet the qualifications for a charitable organization under Section 501(c)(3), usually because the funds are earmarked for a particular person or person. 

The issue is no longer academic or obscure. According to a Lilly Family School of Philanthropy survey, nearly one-third of respondents said they donate at least once a year to a crowdfunding venture, especially responding to family members and close friends in need.

Even with the increase in popularity of crowdfunding and online fundraising platforms, the IRS has only just begun to issue guidance. Consider Private Letter Ruling 2016-0036. Here, the IRS referenced a notion it referred to as "detached generosity” and noted that giving to strangers on a platform such as GoFundMe did not generate the "quid pro quo” that is an automatic knock out punch for charitable deduction eligibility. Still, the IRS indicated that the absence of a quid pro quo is not enough to cause a transaction to rise to the level of a charitable contribution. Taxpayers and professionals still must pay close attention to the circumstances and facts of each situation. 

Ice breakers: Three easy openers to talk about philanthropy 

Many advisors really want to bring up charitable giving in client meetings, especially while updates to tax and estate plans are underway. Indeed, many advisors believe they have a responsibility to raise the issue. But how? 

Addressing charitable giving priorities with clients does not need to be hard. The key is to be interested, relevant, and authentic. Here is a tip for each.

Show genuine interest.

Dale Carnegie’s maxim, “To be interesting, be interested,” is good advice for nearly every social or business encounter. Especially with charitable giving topics, showing interest is important because giving is very personal and emotional. When you are reviewing a client’s tax return, for example, ask about the charitable organizations the client supports. You’ll likely be amazed at the richness of the stories behind each gift. 

Stay relevant.

Tax reform is on the minds of many clients. This gives you an opening to talk about potential changes to the tax rates and what might happen to capital gains treatment. Explore each client’s balance of charitable interests versus leaving inheritances to family members. Charitable clients will be glad to know you are up to date on lobbying efforts of nonprofit sector leaders. Indeed, many charitable clients serve on nonprofit boards whose members also would find this information useful. For example, in its April 16, 2021 letter to Secretary of the Treasury Janet Yellen, the Charitable Giving Coalition noted that the charitable deduction is “unique” and “promotes a selfless act, incentivizing taxpayers to give more funds to charities than they would otherwise give.”

Be authentic about COVID-19.

Nearly everyone has been affected by the pandemic in some way. Sharing your own experiences and impressions of 2020 and early 2021 will encourage clients to open up. Charitable giving is a natural topic of this conversation. According to a study conducted by Candid, U.S. foundations, corporations, and individual donors stepped up by granting more than $10.7 billion as of early 2021 to address pandemic-related challenges. “There is no doubt that philanthropy has responded to COVID-19 on a scale not seen before,” note the study’s authors. Inspiring statistics like these bring home the importance of charitable giving as part of a family’s overall financial and estate plan. And of course, please reach out to the community foundation for updates on how our board, staff, and donors are rallying to meet the COVID-19 challenges in our own community.  

Factors to consider for a couple’s charitable giving

Giving together: Factors to consider when representing couples

The community foundation can help as you work with a couple to design a charitable giving plan that will create rewarding philanthropic experiences for both partners. Indeed, in Giving as a Couple, Rockefeller Philanthropy Advisors reinforces the tenets we maintain as a team at the community foundation when we are working with a couple to develop and activate a charitable giving strategy that matches the couple’s goals and values.

For example:

• Our team strives to understand why your clients want to give together as a couple, rather than “dividing and conquering” as individuals.  

• Our team seeks to deeply understand your clients’ perspectives on roles and control so that we can help structure a process that will allow both partners to be active decision-makers. In certain cases, from time to time, a couple will ask the community foundation to act as a mediator, or even a tiebreaker, in the event that the partners are in the midst of an amicable debate about a particular community impact strategy or charitable gift. 

• Our team helps couples decide on financial levels of current and legacy giving that will achieve the couple’s philanthropic goals in harmony with their goals for children and grandchildren’s personal inheritances and involvement in the family’s legacy philanthropy. 

Especially if you are representing couples that include women, it’s worth checking out Women Give 2021: How Households Make Giving Decisions, a study released last month by Women’s Philanthropy Institute at the Indiana University Lilly Family School of Philanthropy. The authors of the study observed notable trends in how partners--not just women--approach giving. For example, according to the report:

• More than 61% of couples make charitable giving decisions jointly.

• When decisions are made by one member of a couple, and that couple includes one woman, the woman is more likely to be that decision maker.

• Couples tend to agree on the amount and recipients of their philanthropic investments.

As always, the team at the community foundation looks forward to supporting you as you help your clients achieve their family philanthropy goals. 

In sync on giving: Lawmakers from both parties support expansion of CARES Act deduction

Four Republican Senators, four Republican Democrats, a House Democrat, and a House Republican have introduced legislation to expand the increased charitable deduction cap for non-itemizers to up to one-third of the standard deduction. The Universal Giving Pandemic Response and Recovery Act (S.618/H.R.1704) also extends this temporary $300 deduction, which was included in the original CARES Act, through 2022 and enhances the provision to include gifts to donor-advised funds.  

Preliminary reports suggest that the so-called “universal charitable deduction” is already showing signs of success in encouraging more people to give to charitable organizations. For example, AFP’s Fundraising Effectiveness Project reports a 28% increase of $300 gifts made on December 31, 2020. Considering that $300 is the precise amount of the maximum a non-itemizer can deduct, this does not seem to be a coincidence! AFP also reports that gifts of $250 or less increased by more than 15% in 2020 compared with 2019. 

The inclusion of donor-advised funds as qualified recipients of universal charitable giving is an important breakthrough and recognition that donor-advised fund vehicles are powerful tools to increase effective charitable giving. Especially when paired with the expertise and resources uniquely available through the community foundation, a donor-advised fund can be a critically important component of the philanthropic strategy for an individual, family, or business. 

April showers: Puddles to avoid as you navigate tax deadline extensions

Your clients most certainly are aware that the Internal Revenue Service and the Treasury Department have extended the federal income tax filing and payment deadline for the 2020 tax year from April 15, 2021 to May 17, 2021. Be aware, however, that clients might overlook the fact that this extension applies only to individual taxpayers. And although the May 17, 2021 deadline does apply to individuals who pay self-employment tax, it does not apply to estimated tax payments (still due on April 15) or withholding. The extension also does not apply to nonprofits and business entities, so it’s business as usual on April 15 for entities filing Forms 1120 and 990. In addition, individuals still must comply with state filing deadlines, to which an extension may or may not apply.  

Tax perks: Treats to start a happy new year

Congress extends charitable giving incentives

As your clients reboot after a wild 2020, now is a great time to address their charitable giving plans for 2021. COVID-19 has proven to be a marathon, not a sprint. Nonprofit organizations will be relying on the generosity of donors for the foreseeable future to stay afloat and serve the people who need their programs.

Consider dropping a quick note to clients for whom philanthropy is a priority, sharing a few tips that can help make 2021 a better year for our community: 

1. Even non-itemizers should plan to make at least $300 in cash contributions to qualifying charities (and now $600 for non-itemizing joint filers) this year. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, known as the Coronavirus Stimulus 2.0 bill, was passed by Congress on December 21, 2020 and signed by President Trump on December 28. The legislation extends the CARES Act’s temporary, above-the-line charitable deduction for contributions to qualifying public charities for tax year 2021. 

1. The Coronavirus Stimulus 2.0 bill also includes a one-year extension of the CARES Act’s provision increasing charitable deduction limits to 100 percent of AGI for contributions by individuals to qualifying charities. This creates an opportunity to work with your clients on a charitable giving budget for 2021, especially because you’ll want to run calculations to determine whether clients can benefit from this incentive, or whether a client would still be better off carrying forward charitable contribution deductions into future years. 

1. Given the extensions included in the Coronavirus Stimulus 2.0 bill, coupled with the general uncertainty about potential tax reforms under the Biden administration, it is wise to counsel your clients about being especially organized about charitable giving in 2021. Clients will want to be even more conscientious about the impact of dollars invested in the community, too. 

As always, we would be pleased to assist you and your clients. For example, donor-advised funds and other planning vehicles through the community foundation can help your clients organize their giving and deploy it in a way that maximizes results for the causes your clients care about. 

Keeping our community strong: Your role is critical

COVID-19 has significantly impacted nonprofit operations across the country and hampered nonprofits’ ability to help their communities during a crisis in which millions of people are in need. The National Council of Nonprofits reports widespread damage to nonprofits’ programs, services, supplies, staffs, and budgets due to the pandemic and current economic challenges. This means nonprofits need philanthropic support now more than ever.

At the same time, some donor segments have been steadily losing confidence in the nonprofit sector, according to the Give.org Donor Trust Report 2020: Trust and Giving During the COVID-19 Outbreak. For example: 

1. Although 24.4% of study participants reported in late 2020 that they planned to give more to charities, that figure represents a drop of more than 6% since early 2020.

1. Gen Zers are more likely than other generational cohorts to shift from giving money to charities to supporting local businesses instead. Specifically, 28.6% of Gen Zers report this preference, compared to 0% of Matures and just 1.9% of Boomers.

1. Related, 26.3% of Gen Zers report that they are not satisfied with traditional charitable donations.

As a trusted advisor to your clients and their families across generations, your opportunity here is to offer information and resources to help your clients become more giving savvy--understanding the impact of nonprofits, how to measure the success of their charitable gifts, and how to select nonprofit organizations who are delivering the greatest return on investment to the people they serve. Our team at the community foundation is deeply familiar both with the needs of the community and the nonprofits who are fulfilling them. We hope you won’t hesitate to reach out for support as you help your clients navigate ways to address our community’s challenges.

Consciousness on the rise: Tips for advising impact investors

The term “impact investing” is said to have emerged in 2007 as a descriptor for deploying capital not only to achieve financial returns, but also to foster social progress and/or avoid harm to people and the environment. 

Since then, impact investing as a discipline among individual and institutional investors has grown rapidly. According to Barron’s, a total of $502 billion was held in impact investments in mid-2019. A year later, that number stood at $715 billion--an increase of more than 42%. 

As inquiries from your clients increase, and more and more of them ask for your help in exploring impact investing options for their philanthropic and non-philanthropic dollars, keep an eye on opportunities that seem to promote having the cake and eating it, too. 

For example, in a recent private letter ruling, the IRS denied an organization’s application for 501(c)(3) status because the activities it proposed--creating an investment fund to carry out typically “charitable” activities--were not viewed by the IRS as charitable for tax purposes. The taxpayer requesting the ruling had proposed activities such as economic development in low-income communities and initiatives to fight climate change.

Though an eyebrow-raiser at first glance, the ruling ultimately does a nice job of reinforcing the distinction for tax purposes between program-related investments, which is itself a charitable activity, and mission-related investments, which is not a charitable activity.

It’s relatively easy for investment-focused professionals to miss the distinction, but the distinction is critical for proper tax treatment. A program-related investment (PRI) must significantly further a charitable purpose and can’t have a significant investment purpose, which effectively means that the investment is not one that a pure investor would be likely to make because its possibility of achieving competitive returns is extremely slim.  

On the other hand, a mission-related investment (MRI) still has to meet prudent investment standards, even if it might not be the most profitable investment option on the market because it is taking mission into account. 

The challenge for you as an advisor is to help your clients evaluate impact investment funds that appear to promote financial returns simultaneously with community good, with an implication that tax benefits are somehow woven into the offering, which may well be too good to be true. Our knowledgeable staff at the community foundation is here to assist you!    

Cybersecurity, starting a charity, and conservation easements

Advising clients on starting a charity

As 2020 marches on with little relief in sight from crises affecting our region, more and more attorneys, accountants, and financial advisors are fielding questions from well-intended clients who are exploring starting their own nonprofits to help people in need. 

Whether a client's passion is health care access, support for the arts, social justice, or any one of hundreds of other worthy causes, it's critical that you provide counsel regarding the pros and cons of forming a brand new nonprofit.

Here are suggested topics to include in your client discussions:

1. For profit, or nonprofit? Help your client decide whether they really, truly want to start a charity, or whether what they’re envisioning would be better structured as a for-profit business. Explain to the client that the rules and tax advantages are different, and so is the way the enterprise is funded. Most charities keep the lights on by securing donations. Businesses keep the lights on by selling goods or services. Either way, you’ve got to pay employees and run a budget. This seems like common sense and something that any astute client would understand, but sometimes even these basic principles are easy to overlook when enthusiasm for a cause takes over. 

2. The state and the Feds. Explain to the client that if they do decide to start a new charity, just like a business, it still requires setting up a legal entity. Unlike a for-profit business, though, to qualify as a tax-exempt nonprofit, the client will need to apply to the Internal Revenue Service for an exemption under Section 501(c)(3). This exemption is what allows the organization to be free from paying income tax, and it also allows people to donate to the organization and be eligible for a tax deduction on their own tax returns. Again, these rules seem like Charity 101 material, but never assume your client is in the know. 

3. Sell, sell, sell. Most people who start a charity are passionate about a cause and probably already have programs in place or in mind to help others. The trick, though, is to get out there and share the news about the cause to raise money. Your client needs to be aware that starting a new charity involves “sales,” just like a for-profit enterprise, except they most likely will be asking for donations to support their good work instead of selling goods or services like a for-profit business. Certainly nonprofits can generate earned income, but most organizations also should be designed to receive public support in the form of grants and contributions to avoid certain tax rules, such as those prohibiting excess “unrelated business taxable income.”  

4. Verify the unmet need. Finally, and perhaps most importantly, encourage your client to research whether there are any existing organizations that are already serving the mission your client intends to fulfill. Indeed, during challenging economic times such as these, best practices suggest that two or more nonprofits combining their efforts is a good way to create efficiencies and ensure more effective service delivery to people in need.   

Weeding out taxpayers who abuse conservation tools

As environmental consciousness continues to rise, so does the subject of conservation easements as a tax-savvy charitable giving tool. Perhaps your clients have even explored this vehicle, which involves the client giving up certain rights to the ability to alter a tract of land, with the intent to preserve the land indefinitely. The reason this transaction creates a charitable gift is because the easement typically results in a lower property value because the parcel's usefulness for commercial purposes is eliminated or drastically reduced. 

Conservation easements are not new. A resource called the National Conservation Easement Database provides mapping and information related to all conservation easements in the United States, which as of 2018 totaled 130,000 in number and covered nearly 25 million acres of land. 

Unfortunately, conservation easements can be the target of abuse by unscrupulous taxpayers seeking to undermine the Internal Revenue Service’s strict parameters for deductions and tax benefits generated from the grant of a conservation easement. This abuse has caught the attention of lawmakers. On August 25, 2020, Senate Finance Committee Chairman Chuck Grassley and Ranking Member Ron Wyden released a report on the findings of investigations into a few “bad actors” who, they believe, are circumventing the rules and thereby reducing federal tax revenue to the tune of billions of dollars. 

The report is a must-read if you have clients who are involved in conservation easements or are considering using this planning vehicle. 

IRS speaks out on cybersecurity

According to the American Bar Association’s 2019 Legal Tech Report, 26% of law firms experienced some type of security breach in 2018. Although fortunately only 3% of the law firms affected reported compromised client data, the risk is real. As virtual work environments have become the norm at many law firms, accounting firms, and financial advisory firms, the issue of cybersecurity has landed squarely on the Internal Revenue Service’s radar. 

In IR–2020–176, released on August 4, 2020, the IRS strongly recommends that every firm deploy a virtual private network (VPN) to guard against security threats. “As teleworking or working from home continues during the coronavirus,” the notice says, “VPNs are critical to protecting and securing internet connections."  

Kicking off a new year: Philanthropy in the news and charitable giving budgets

Philanthropy in the News

#GivingTuesday continues to grow in popularity. 2019 marked the eighth annual event, raising an estimated $511 million online. This figure is up significantly from 2018's total, which was $400 million. As #GivingTuesday continues to grow and more people participate, it's becoming more likely that your clients are joining in, too, so you'll want to stay up to date. #GivingTuesday 2020 is scheduled for December 1. 

#GivingTuesday is just one of many examples of ways philanthropy is going mainstream and sparking new movements that quickly rise in popularity. The community foundation plays a key role in staying on top of all of the trends in giving. Our team is happy to answer questions about ways your clients can give to their favorite causes, whether online, through a donor-advised fund, or through more complex charitable planning vehicles such as gift annuities, bequests, and charitable remainder trusts.

Creative Solutions

As your clients gear up for another year of giving, how can you help them make the most of their good intentions? Consider helping clients plan their charitable giving budgets around three points—amount, timing, and category.

1. How much? That’s the $64 question. Likely more, depending on the client's budget. Something for clients to keep in mind when setting a budget for supporting favorite causes is that giving money isn’t the only way to do good. Clients should also celebrate other social impact activities such as volunteering, serving on a board, donating gently-used clothing, purchasing products that support a cause, or marketing favorite charities through social media. It all counts. Clients can set annual charitable giving budgets based on what makes sense for their families. Keep in mind that a donor-advised fund at the community foundation is a great way to organize financial contributions to favorite charities.

2. How often? Charities are looking for support year round. More than 50 percent of charitable contributions are made during the holiday season, but it doesn’t have to be that way. Consider suggesting that clients spread giving throughout the year. Their tax deductions are unaffected, and they'll be giving the organizations they support a much-appreciated boost to cash flow.

3. Who gets it? Most people support a wide variety of charities. To help your clients see where their dollars are going, suggest that they sort the recipient organizations into major categories of social impact. For example: Community Development, Arts & Culture, Children & Families, Health & Life Science, Education. Keep in mind that religious giving frequently falls into one of these five categories, depending on the gift’s purpose. 

As always, the team at the community foundation is here to help you as you work with your philanthropic clients. We look forward to collaborating in 2020! 

Tax Savvy 

As you counsel your nonprofit organization clients and individual clients who are board members of charities, it is important to stay on top of changes in the tax laws that pertain to exempt organizations. Most recently, on December 20, 2019, President Trump signed the Further Consolidated Appropriations Act 2020, H.R. 1865, which passed the House of Representatives by a vote of 297–120 and the Senate by a vote of 71–23. The law repeals Internal Revenue Code Section 512(a)(7). This provision was part of  the Tax Cuts and Jobs Act. It required tax-exempt employers to pay unrelated business income tax (UBIT) on transportation fringe benefits, such as parking. The tax applied to the amount by which Section 274 did not allow a deduction. So, tax-exempt employers no longer need to pay UBIT tax on these fringe benefits.

Please contact the team at the community foundation anytime you have a question about laws that impact the charitable sector. It's our job to help you stay current on tax laws and regulations that impact your clients. 

Winter is coming: Tax tips and donor-advised funds in the news

Philanthropy in the News: Donor-advised Funds

Donor-advised funds continue to be a hot topic among commentators, including several recent opinion pieces published in the Chronicle of Philanthropy. Now is an ideal time to remind your clients of the benefits of establishing a donor-advised fund through the community foundation. Donor-advised funds are popular because they allow an individual or family to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking account just for charity, except it’s established according to the IRS guidelines that create the tax advantages. Most importantly, however, establishing a donor-advised fund through the community foundation offers the additional benefit of allowing your clients to access the expertise of our team who is dedicated to staying up-to-date with the community's greatest needs and priorities and the causes your clients care about. This means your clients can make a meaningful and lasting difference in your community--an advantage not available through commercial donor-advised fund providers.

Creative Solutions: Answering Clients' Questions About Charities

During the giving season, it is not unusual for a client to ask an advisor about a specific charity in the community. Clients might want to know whether that charity is reputable and effective. That's a tough question to answer! Most attorneys, accountants, and wealth advisors are not in a position to know the ins and outs of how charities in the community are being managed. That’s okay, as long as you have a few  strategies for client conversations when they do arise.

Your responsibility to your clients in today’s social impact culture is to be equipped with at least a minimum level of working knowledge. For example:

Tell your client to consider the source. Your talk track can go something like this: "If it’s a friend, colleague, or a neighbor asking you to support a cause she knows and loves, you can be more confident in your contribution. Ask about the organization to find out whether it’s a fit for you. Don’t worry—you won’t offend your friend by asking questions. Instead, your interest in the cause your friend is marketing will give her a chance to tell the story about how that organization is making a social impact."

If the charity is brand new and not one you’ve heard of, suggest that your client start with something other than money. You can say something like the following: "Giving money to a charity is not the only way to do good. Supporting causes includes a wide range of other activities, such as recycling, volunteering, serving on boards, donating canned goods or clothing, attending community events, marketing a favorite nonprofit, sharing with friends and families in need, purchasing brands that support causes, and caring for your own health and wellness. So, if you are uncomfortable with a monetary contribution, do something else for the charity you’re being asked to support. Volunteer for an hour or two, donate household items, or attend one of the charity’s events by buying a ticket instead of making an outright donation. These activities give you a chance to check things out."

Encourage your client to go online. Here's what you can say: "You should check out the charity online. Giving is big business, and charities today know they need to report compelling information on their websites about the difference they’re making with your dollars. Be sure to look at the charity’s Form 990, too, available through GuideStar.org. The Form 990 is the charity’s tax return, and it will contain important disclosures to provide a glimpse into the financial stability of the organization."

Above all, make it a point to familiarize yourself with the experts in your region. Remember that the community foundation is here for you. Our mission is to increase charitable giving in the community, connect donors to causes, and lead on critical community issues to improve the quality of life in our region, now and in the future. We are integrally involved with nonprofits in the community, and our team knows how to help you help your clients improve the quality of life for everyone.

Tax-Savvy Giving: A Quick Reminder

Year-end is is good time to remind your clients about the benefits of giving shares of highly appreciated stock. Donating long-term appreciated securities, including stock, bonds, and mutual funds, to a fund at the community foundation delivers much greater benefits compared with donating cash, or selling the securities and contributing the after-tax proceeds. The team at the community foundation is here to help you and your clients establish the most tax-savvy giving vehicles, especially at year-end. We encourage you to contact us with all of your clients' year-end charitable giving needs. 

Fall focus: Advisors' roles are a big piece of the charitable planning pie

Focus on Advisors: The Critical Importance of Your Role

Today’s social impact culture mindset has infiltrated every business, nonprofit, and financial institution in America. The boundaries of our personal and professional lives are blurred across a wide range of social impact behaviors.

What does this mean for your work with your clients? It means your clients are walking into your office with "doing good" on their minds. You can build an immediate connection with your clients when you start a conversation about the ways they--and you--are getting involved in the community. Here are three tips for starting that conversation.

1. Demonstrate that you are in touch with the wide range of "doing good" activities.

With the rapid rise of social consciousness, philanthropy is expanding to cover far more territory than just one or two ways to do good. Consider the full footprint of social impact lifestyle factors that make up the contemporary marketplace mindset: Giving to charities, volunteering in the community, serving on boards, donating necessities to people in need, recycling, purchasing products that support a cause, marketing a favorite organization, celebrating at fundraising events, sharing with friends and family, and caring about your own well-being. Ask your clients about a few of these social impact behaviors. This lets them know that you care about them as human beings.

2. Be aware of the regulatory environment.

Many of your clients who run or own businesses are paying attention to social responsibility in the corporate sector. For example, the Global Reporting Initiative (GRI) is an international standards organization that helps businesses, governments, and other groups understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption, and many others. GRI represents the commitment of hundreds of companies to strive toward a common set of benchmarks to protect the earth and humanity. More than 90 percent of the world’s largest 250 companies are among the thousands of “GRI reporters,” meaning they subscribe to the organization’s standards for sustainability performance. Ask your clients about their corporate commitment to civic engagement.

3. Show your clients that you are doing something, too.

Your clients want to know that you share their commitment to community. Give them peace of mind by talking about your own volunteering efforts, the boards you serve on, or the charities you support. Best of all, let your clients know that you are connected to the Community Foundation, an organization committed to helping people fulfill community dreams through the power of philanthropy.




Worth a Reminder: Donor-Advised Fund Basics

Donor-advised funds are popular because they allow an individual or family to make a tax-deductible transfer that qualifies as a charitable contribution, and then later recommend gifts to favorite charities from the fund when the time is right. A donor-advised fund operates a lot like a checking or savings account just for charity, and it’s established according to the IRS guidelines that create the tax advantages.

How can you connect this trend to your work with your clients? Here are three pointers.

1. Talk the talk.

Your clients are hearing about donor-advised funds. Make sure they are hearing about them from you! Whether your clients support a few charities or many charities each year, a donor-advised fund is a useful tool. Furthermore, the tax advantages set the donor-advised fund apart from other vehicles. Your clients will expect you to be knowledgeable.

2. Know the options.

Donor-advised funds are available through a variety of providers. Community foundations are uniquely positioned to offer donor-advised funds with the inherent tax and transactional benefits you and your clients expect, plus the added advantage of deep community knowledge and a well-connected team of experts to enrich your clients' experience with philanthropy. Only a community foundation has the in-depth knowledge of what it really takes to make a difference in the community. With a wide range of relationships at their fingertips, community foundations are in touch with the techniques and tools to help your clients’ favorite nonprofits make the difference they want to see in the causes they care about. In addition, a donor-advised fund at a community foundation gives you a wide range of options for successor advisors and for the charities you want to support.

3. Walk the walk.

Consider establishing your own donor-advised fund with the community foundation. In today's social impact culture, clients want to work with well-rounded professionals who are connected to well-respected community institutions. The team at the community foundation would be honored to work with you and your family to meet your own charitable giving objectives. We're always looking for donor stories to share with others, too, so keep that in mind as an option to celebrate our work together.

Bread and butter basics: Types of funds, disaster giving, and tax tips

Be wary of overstating the value of charitable tax deductions

In Estate of Dieringer v. Commissioner, the Tax Court issued an opinion reducing the charitable deduction in a decedent’s estate when the stock was redeemed only shortly after the decedent’s death. Earlier this year, on appeal, the Ninth Circuit affirmed that decision, referencing Ahmanson Foundation v. United States. The court relied in part on the principle that an estate tax deduction is allowed only for what is actually received by the charity. This longstanding “actually received” rule should always be top of mind for practitioners as they advise their clients on charitable giving tools and techniques. Read the full text of the court’s opinion for a refresher course on this important issue.
 

Substantiation requirements: Still relevant

As 2019 draws to a close, now is a good time to refresh your recollection about gift substantiation requirements as your clients plan their year-end charitable giving activities. Since last year, when the Department of Treasury released its final regulations for substantiation and reporting of deductions for charitable contributions, gift substantiation has remained a hot tax topic during giving season. Key areas include:

• Definition of a qualified appraiser (this provision took effect in 2019)

• Requirements for gifts of partial interests

• Appraisal requirements for charitable remainder trusts, even if the trust holds marketable securities

• Requirement to attach an appraisal for gifts of real estate valued over $500,000  

Check out the full text of the regulations.   

Tune in to questions on disaster relief giving

Catastrophic weather events may leave your clients wondering how best to help people who’ve been affected. Americans give a total of more than $10 billion to disaster relief efforts annually, but only 25% feel “very clear” about how that money is spent. This is a surprisingly low number, especially given the popularity of giving for disaster relief. What this should signal to you is that your clients are seeking information on topics such as when to give, how to be sure the gifts have an impact, and which organizations to support.

HOW WE CAN HELP

As you talk with your clients about how to support people in need after disasters, consider calling the community foundation for insights. Whether the people affected live in this region or not, our experts will be able to guide you and your clients through a decision-making and evaluation process about how dollars can best be deployed.  
 

Building emotional connections: Philanthropy and its role in families

Attorneys, financial planners, and accountants frequently observe that their clients who participate in philanthropic endeavors seem happier and more connected to their fellow family members. This phenomenon is more than just an observation. Several studies over the years have shown that engaging in “prosocial behavior” helps build strong relationships. According to a study in Mindfulness, for example, 85% of people help someone else once a week, which fosters overall mental health and positive interpersonal connections. As you work with your clients and their families across generations, keep in mind the power of philanthropy to keep families connected.

HOW WE CAN HELP

The community foundation’s experience working with families across generations can help you build a legacy of giving for your clients. For example, consider working with the community foundation to help grandparents establish donor-advised funds for each child or grandchild. Or, consider working with a client and the community foundation to set up a fund to support a specific cause that the whole family loves.

Worth repeating: Bundling gifts

The timing of charitable gifts is something that can’t fall off the radar, so it’s worth a regular reminder about bunching, or “bundling,” gifts to charities. The ripple effects of tax reform have meant that just 10% of taxpayers now itemize deductions, down from 30%. A smart strategy for your charitable clients who want to maximize deductions under the new tax laws is to make two or more years’ worth of charitable contributions in a single year. This can push taxpayers over the itemizing threshold to reap the benefits of deducting the full value of their donations.

Checklist: Types of funds at community foundations

The community foundation offers a variety of funds to meet your clients’ needs. Keep this checklist handy as you meet with philanthropic families.

Donor-advised Funds

A donor-advised fund enables your client to establish a specific account for charitable giving. Clients make tax-deductible contributions of cash or other assets to the fund, and then they are able to recommend grants to favorite charities. 

Unrestricted Fund

The community foundation has its finger on the pulse of the community’s most pressing issues. An unrestricted fund gives your clients the opportunity to support community needs that can’t be identified until the future. One of the biggest benefits of a community foundation is its perpetual structure that allows support to nonprofits to evolve over time as priorities in the region shift. 

Field of Interest Fund

Clients who want to target giving to specific areas of community need (such as education, health, environment, or the arts) can establish a field of interest fund to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.  

Designated Fund

A designated fund allows a client to direct giving to a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to the terms established by the client.

Scholarship Fund

Your clients can set up funds to support students’ educational pursuits based on the parameters and application requirements they select with help from the experts at the community foundation.